Adobe Systems Incorporated ADBE is slated to report fourth quarter fiscal 2015 results on Dec 10. In the last reported quarter, Adobe recorded a positive earnings surprise of 11.43%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Adobe is being driven by continuous innovation in its Creative Cloud and Marketing Cloud businesses.
The Creative business in its Digital Media Solutions segment is seeing acceleration in Creative Cloud subscriptions. Also, the conversion of enterprise customers to Enterprise Term License Agreements or ETLAs is leading to increased adoption of its enterprise Creative Cloud offering.
Increased subscription, ETLA adoption and digital publishing suite adoption will help drive Creative annualized recurring revenues.
We remain positive about Adobe’s market position, its compelling product lines (including CS cloud initiative and digital media products), continued innovation and strong balance sheet. In addition, we believe that the consistent adoption of the Adobe marketing cloud could serve as a potential catalyst in the to-be reported quarter.
Adobe posted decent third quarter results with earnings exceeding the Zacks Consensus Estimate but the top line missing the same. Revenues were down 5.9% sequentially but up 1% year over year. The decrease was mainly due to lower sales in its digital media business, which includes the Creative Cloud software suite.
For the fourth quarter of 2015, Adobe expects revenues in the range of $1.025 to $1.075 billion. Analysts polled by Zacks expect revenues to be $1.306 billion. Based on a share count of 508–510 million, GAAP earnings are expected in the range of 5–11 cents per share, while non-GAAP earnings are expected in the range of 26–32 cents.
Earnings Whispers?
Our proven model does not conclusively show that Adobe will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 45 cents. Hence, the difference is 0.00%.
Zacks Rank: Adobe carries a Zacks Rank #5 (Strong Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies, which you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:
Mellanox Technologies, Ltd. MLNX, with Earnings ESP of +2.44% and a Zacks Rank #1 (Strong Buy)
Citrix Systems, Inc. CTXS, with Earnings ESP of +1.00% and a Zacks Rank #1
Intel Corporation INTC, with Earnings ESP of +1.59% and a Zacks Rank #2 (Buy)
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