Adobe Systems Incorporated (ADBE), a diversified software company, will report its fiscal third quarter results after the market closes on September 17.
There are many positives for Adobe — technicals trending upwards, earnings outlook sound, growth with new innovations and acquisitions, and plenty of analysts support — which should bode well for the call options trade recommended below.
Technical Outlook Good
ADBE was recently trading at $48.36, just 27 cents shy of its 12-month high and $17.03 above its 12-month low. Technical indicators for ADBE are bullish and the stock is in a strong upward trend. The stock has support above $46.00.
Earnings Look Great
Going into the company’s quarterly report, analysts expect earnings of $0.34 per share, down from $0.58 during the same period last year. The stock has been a strong performer in 2013, having traded up 27.9% year to date.
Adobe Systems last posted its quarterly earnings results on Tuesday, June 18. The company reported $0.36 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.34 by two cents. The company had revenue of $1.01 billion for the quarter, compared to the consensus estimate of $1.01 billion.
During the same quarter in the prior year, the company posted $0.60 in earnings per share. The company’s quarterly revenue was down 10.1% on a year-over-year basis.
On average, analysts expect Adobe Systems to post $1.45 EPS for the current fiscal year and $1.70 EPS for the next fiscal year.
However, Adobe will probably come in better than expected, perhaps, a lot better. If the company can mix in some margin improvement, ADBE’s share price will improve, as well.
Adobe has accelerated its transition from its long-standing permanent software license model to a cloud-based services setup and is continuing to lead the digital publishing revolution with new innovations. Adobe has taken advantage of the rising popularity in cloud computing with its web-based Creative Cloud, which includes the company’s popular titles Photoshop, Illustrator and Flash. Creative Cloud was introduced during the second quarter of 2012, and has been gaining in popularity. During the second quarter, the company added 221,000 paid subscribers, which took the total number of subscribers to 700,000, and it is expected for stronger subscriber growth during the third quarter.
Other examples of recent innovations are:
- Standardized audience metrics for digital publishing industry — through analytics included with the Digital Publishing Suite, Adobe now enables publishers to measure the total number of tablet readers per issue, total number of sessions per issue, average amount of time spent per reader per issue, and average number of sessions per reader per issue, pioneering a clear method to measure and report audience readership across digital magazine editions.
- Extending web and mobile optimization capabilities to marketers across organizations – a key element of the Adobe Marketing Cloud which makes it easier for marketers to optimize all of their digital experiences to achieve marketing and revenue goals.
Acquisitions and Growth
Adobe has also been diversifying into other cloud-based services beyond its flagship Creative Suite in both domestic and international markets. Adobe recently acquired a privately held French company, Neolane, for a price of $600 million in cash, to establish a presence in on-line marketing services.
Adobe also bought out Ideacodes, which designs and creates user interfaces for smart applications, digital products, and networked communities.
Also recently, Adobe acquired a small mobile app developer, Thumb Labs, to bolster its presence in the social and mobile spaces.
Analysts like ADBE
A number of research firms have recently commented on ADBE. Zacks reiterated a “hold” rating on shares of Adobe Systems on Monday, September 9. They now have a $50.00 price target on the stock. On the ratings front, analysts at Robert W. Baird raised their price target on shares of Adobe from $46.00 to $50.00 on Monday, September 9. They now have a “neutral” rating on the stock. Finally, analysts at Pacific Crest upgraded shares of Adobe from a “sector perform” rating to an “outperform” rating Monday, August 26. They now have a $60.00 price target on the stock.
Of the 17 analysts who cover the stock, 10 rate it a “strong buy”, one rates it a “buy”, and six rate it a “hold”.
Adobe last reported earnings in June, announcing strong numbers and an upbeat forward guidance. The company showed earnings, excluding items, of $0.36 per share, topping the $0.33 analysts had forecast. Revenues were in-line with estimates at $1.01 billion.
The stock has been strong this year, and if the company is able to post earnings in-line or higher than analysts’ estimates the stock should continue to trend higher. Therefore, take advantage of the following options call:-
OPTIONS TRADE: Buy the ADBE Jan 2014 50.000 call (ADBE140118C00050000) at or under $2.05, good for the day. Place a protective stop limit at $0.80 and a pre-determined sell at $3.30.
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