Adobe earnings preview: will it miss?

The software company is under close scrutiny, ahead of its second quarter results on Tuesday.

By Zacks.com Jun 17, 2013 5:51PM

Adobe Systems Inc. headquarters is seen in San Jose, Calif.
© Paul Sakuma/APBy Zacks Equity Research

 

Adobe Systems Inc. (ADBE) is set to report second quarter 2013 results on Tuesday. Last quarter, it posted a 10% positive surprise. Let’s see how things are shaping up for this announcement.


Growth Factors This Past Quarter

Adobe’s first-quarter earnings of 22 cents were in line with the Zacks Consensus Estimate. Revenues were down both sequentially as well as from the year-ago quarter, but were above management’s guidance due to increased adoption of Adobe’s Creative Cloud. Margin expansion was limited due to the change in sales mix, which favored lower-margin products.


Adobe provided a modest outlook for the second quarter, with revenues forecast to increase 0.8% sequentially. Adobe expects non-GAAP earnings per share in the range of 29–35 cents, above the Zacks Consensus Estimate of 21 cents.


Earnings Whispers?

Our proven model does not conclusively show that Adobe will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.


Negative Zacks ESP:  The Most Accurate estimate stands at 19 cents while the Zacks Consensus Estimate is higher at 21 cents. That is a difference of -9.52%.


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


Other Stocks to Consider

Other stocks that have both a positive earnings ESP and a favorable Zacks Rank are:

Akamai Tech (AKAM), Earnings ESP of +8.11% and Zacks Rank #1 (Strong Buy)
Accenture Plc. (ACN), Earnings ESP of +3.51% and Zacks Rank #2 (Buy)        
Yahoo Inc. (YHOO), Earnings ESP of +3.85% and Zacks Rank #2 (Buy)

 

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