Why Adobe (ADBE) Stock Keeps Climbing

Shares of Adobe Systems ADBE jumped nearly 4% through early afternoon trading Tuesday to hit yet another new all-time high as investors continue to ride the software firm’s post-Q1 earnings wave.

Latest Results

Adobe, which makes editing programs such as Photoshop and Premiere, posted record first quarter revenues of $2.08 billion last week. This figure also marked 24% growth from the year-ago period. Furthermore, Adobe’s adjusted earnings of $1.55 per share topped our Zacks Consensus Estimate.

The company did not provide updated guidance for the rest of the year, but it previously announced that it expects to post full-year revenues of $8.73 billion. Adobe also noted that it expects the new Republican tax law will have a positive impact on its business.

“The new Tax Act is lowering Adobe’s effective tax rates, driving a significant increase in our earnings per share targets," CFO Mark Garrett said in a statement. “With ready access to our offshore cash, we will continue to evaluate investment opportunities to grow our business and we are actively expanding our campuses in the Bay Area and Utah to accommodate the growth of our employee base.”

Looking Ahead

It seems clear that Adobe’s most-recent quarter pleased investors, but this positivity won’t last forever unless there are growth metrics that support the company’s new price tag. Based on a quick look at the latest top and bottom line projections, Adobe does indeed look ready to continue its expansion.

Adobe’s Q2 revenues are projected to surge 21.3% to reach $2.15 billion, while the firm’s full-year sales are expected to climb at a similar rate to hit $8.78 billion. It also looks like Adobe’s new lower effective tax rate is in fact set to boost earnings right away.

The company is projected to see its quarterly earnings skyrocket 50%, while its fiscal 2018 EPS figure is expected soar by 45.9% to reach 6.29 per share.

Adobe has also recently earned a large number of estimate revisions for its current quarter, next quarter, and the current year, with 100% agreement to the upside. Investors should note that Adobe has matched or topped earnings estimates for 14 straight quarters, including a 9% average surprise in the trailing four periods.

This stretch of beats mostly likely means that Adobe does everything in its power to post the best earnings to please its shareholders. Looking ahead, the company might have an even easier time doing so if its effective tax rate stays down.

Bottom Line

Adobe made it clear that it plans to spend money to expand, and the firm recently highlighted the growth of one of its newer segments, Document Cloud. But Adobe’s bread and butter creative suite is a high margin business that allows it to return money to investors. Adobe is also currently a Zacks Rank #3 (Hold) and sports a “B” grade for both Growth and Momentum in our Style Scores system.

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