Will Adobe Systems (ADBE) Surprise in Q1 Earnings Release?

Adobe Systems Inc. ADBE is slated to report first-quarter fiscal 2017 results on Mar 16. Last quarter, the company recorded a positive earnings surprise of 15.28%.

Let’s see how things are shaping up for this announcement.

Shares of Adobe have been have been steadily treading higher over the last one year. The stock returned 40.05% compared with the Zacks Computer-Software industry’s gain of 22.44%.

Factors to Consider

Adobe is being driven by continuous innovation in the Creative Cloud and Marketing Cloud businesses.

The Creative business under the Digital Media Solutions segment is witnessing acceleration in Creative Cloud subscriptions. Also, the conversion of enterprise customers to Enterprise Term License Agreements (ETLAs) is resulting in higher adoption of its enterprise Creative Cloud offering.

Increased subscription as well as ETLA and digital publishing suite adoption should drive Creative Cloud’s annualized recurring revenues.

We are also positive on Adobe’s market position, compelling product lines and balance sheet strength. Additionally, continued adoption of the Adobe marketing cloud could serve as a catalyst in the to-be-reported quarter.

Adobe posted strong fiscal fourth-quarter results with both earnings and revenues beating the Zacks Consensus Estimate. Revenues were up 9.9% sequentially and 23.1% year over year on the back of strong adoption of Creative Cloud.

However, lower end-market demand, increasing competition from Microsoft MSFT and Apple AAPL and significant exposure to the economically troubled European region could be matters of concern.

For fiscal first quarter, Adobe expects revenues of $1.625 billion. Based on a share count of 501 million, GAAP earnings are expected to be 71 cents per share and non-GAAP earnings are projected at 87 cents.

Earnings Whispers

Our proven model does not conclusively show that Adobe is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 72 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Adobe has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Adobe Systems Incorporated Price and EPS Surprise

Adobe Systems Incorporated Price and EPS Surprise | Adobe Systems Incorporated Quote

A Stock to Consider

You could consider the following stock that has a positive Earnings ESP and a favorable Zacks Rank for its upcoming release.

Caleres, Inc. CAL, with an Earnings ESP of +5.00% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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