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Adobe Reports Impressive Q1 Results; Target Price $563

Adobe, an American multinational computer software company, reported better-than-expected earnings in the first quarter and raised its full-year outlook on expectations that creative applications will drive growth this year.

The San Jose, California-based software company said its first-quarter revenue surged over 25% year-on-year to $3.905 billion, beating the Wall Street consensus estimates of $3.76 billion. Adobe’s digital media revenue rose more than 30% year-on-year and revenue from digital experience climbed 24%.

The software company reported adjusted earnings per share of $3.14 per share, which represents year-over-year growth of over 38% from $2.27 per share seen in the same quarter a year ago.

For the second quarter, Adobe forecasts revenue of $3.720 billion and non-GAAP EPS of $2.81. The company also raised guidance for fiscal 2021 revenue to $15.450 billion and non-GAAP EPS to $11.85.

Adobe shares, which surged over 51% in 2020, closed about 2% higher at $460.20 on Tuesday.

Analyst Comments

“A solid 6% beat in Digital Media ARR additions, Digital Experience revenues 4% ahead of consensus and op margins 270 bps ahead of the street yielded a 13% EPS beat in Q1 and a 6% raise of the FY21 EPS target. A durable multiple and EPS again ticking higher should drive ADBE towards our $575 price target,” noted Keith Weiss, equity analyst at Morgan Stanley.

“Historically Adobe does not often raise full-year guidance this early in the year. However, the 2% increase to FY21 target revenue also includes over 1 point from a more favorable FX impact, suggesting management isn’t getting too much more aggressive and there exists further potential for upside in an improving spending environment. On EPS, FY21 guidance was raised 6% or $0.65, reflecting a lower tax rate of 16% vs. 17.5% prior (a $0.20 benefit) and leverage on the higher revenue targets.”

Adobe Stock Price Forecast

Nine analysts who offered stock ratings for Adobe in the last three months forecast the average price in 12 months of $563.33 with a high forecast of $600.00 and a low forecast of $510.00.

The average price target represents a 22.41% increase from the last price of $460.2. Of those nine analysts, eight rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

“We see strength on all fronts of quarterly performance. New customer engagement levels remained strong and activity on adobe.com remains elevated as a result of the extended remote work environment. We think results continue to support our investment case that Adobe will continue to dominate the creative segment, and its well-rounded portfolio, including Magento and Marketo, position the firm as a digital marketing leader,” noted Dan Romanoff, equity analyst at Morningstar.

“Given results and guidance, we are raising our fair value estimate to $520 per share, from $500. As software has lagged early in 2021, we see shares as increasingly attractive.”

Morgan Stanley gave the base target price of $575 with a high of $698 under a bull scenario and $438 under the worst-case scenario. The firm gave an “Overweight” rating on the software company’s stock.

Several other analysts have also updated their stock outlook. Jefferies lifted the target price to $610 from $600. Adobe had its target price raised by equities research analysts at Goldman Sachs to $523 from $523. The brokerage currently has a “sell” rating on the software company’s stock.

Moreover, Griffin Securities reiterated a “buy” rating and issued a $597 target price. Royal Bank of Canada lifted their price target to $575 from $570 and gave the company an “outperform” rating.

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