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Adobe’s Margin of Safety Before Earnings

Adobe Systems (ADBE) is expected to reports earnings tomorrow after market close. ADBE surged to new highs after its Q1 beat and is currently trading at 95% of its 52-week high.

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ADBE’s stock price has outperformed comparable companies salesforce.com (CRM), Intuit (INTU),Citrix (CTXS) and Symantec (SYMC) increasing almost 20% year-over-year.

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After last quarter’s earnings beat, ADBE management raised FY‘16 guidance and Wall Street quickly followed suit. Consensus estimates have ADBE’s revenues reaching over $10.1 billion by 2020 representing a 16% compounded annual growth rate (CAGR).

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CRM is the only comparable company projected to enjoy a higher 5-year revenue CAGR.

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CRM is also the only comparable company trading at higher EBITDA multiples.

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A fair value of ~$100 per share is calculated by applying a 15x EBITDA exit multiple along with Wall Street consensus projections in the DCF analysis below. This represents a 5% margin of safety compared to current prices. Let’s see whether ADBE beats or misses on tomorrow’s announcement and the resulting price movement.

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