Shares of software heavyweight Adobe Systems (ADBE) have crushed the broader indices by a wide margin over the long term, rising more than 660% in the last decade and 2,180% since April 2004. That values the tech giant at a market cap of $212 billion.
Despite the outsized gains, ADBE stock trades 32% below its all-time highs, and is down over 22% in 2024.
Let’s see if you should buy the dip in Adobe stock right now.
Adobe Disappoints Investors With Q1 Results
Adobe shares plunged nearly 14% in a single trading session after the company’s Q1 results for fiscal 2024 (which ended in February). While Adobe beat consensus estimates on revenue and earnings, a light top-line forecast for Q2 resulted in a sell-off, marking the stock's steepest daily decline since September 2022.
Adobe reported revenue of $5.18 billion and adjusted earnings of $4.48 per share in fiscal Q1 of 2024. Comparatively, analysts were expecting revenue of $5.14 billion on earnings of $4.38 per share for the February quarter.
However, Adobe projected revenue between $5.25 billion and $5.30 billion for Q2, below consensus estimates of $5.31 billion. It also projected earnings to range between $4.35 per share and $4.40 per share in Q2, below Wall Street estimates of $4.38 per share.
More broadly, Wall Street expects Adobe to increase revenue by 13% year over year to $20.2 billion in fiscal 2024, and by 11.5% to $22.5 billion in fiscal 2025. At the same time, adjusted earnings are forecast to expand from $14.81 per share in fiscal 2023 to $17 per share in fiscal 2024, and to $19.20 in 2025.
Adobe Hit by Analyst Downgrades
Following its less-than-impressive top-line forecast, ADBE stock was hit by a slew of analyst downgrades. For instance, Bank of America (BAC) lowered its price target on the tech stock from $700 to $640, while reiterating a “buy” rating. The investment firm also expressed optimism about Adobe's Firefly, a generative artificial intelligence (AI) tool that can create images.
Similar to other Big Tech companies, Adobe joined the AI race by launching an AI-powered assistant for applications such as Adobe Reader and Acrobat, which can help users better consume information from lengthy PDF documents.
In an investor note, Bank of America explained, “No change to our view that Adobe is a major AI beneficiary. While the monetization ramp is slower than anticipated, Firefly is one of the [most] widely used generative AI offerings, with potential for multiple paths to monetization.”
Barclays (BCS) also lowered its price target for ADBE from $700 to $630, but maintained an “overweight” rating on the stock. The brokerage firm expects the stock to recover, and argued it would buy the dip due to the underlying strength in the company’s Creative Cloud business. Finally, Morgan Stanley (MS) maintained an “overweight” rating and a price target of $660.
What is the Target Price for ADBE Stock?
Out of the 31 analysts covering ADBE stock, 22 recommend “strong buy,” one recommends “moderate buy,” six recommend “hold,” and two recommend “strong sell.”
Given its forecasts, Adobe stock trades at 10x forward sales and 28x forward earnings - which is lofty, considering analysts expect earnings to expand by 12.6% annually in the next five years.
The mean target price for ADBE stock is $626.31, which is 34.6% above Friday's closing price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
