ADBE Stock Study (5-3-23)

I recently did a stock study on Adobe Inc. (ADBE) with a closing price of $368.66. The previous study I did on ADBE is here.

CFRA writes:

     > Adobe (ADBE) is the largest provider of applications used
     > to produce visual content, best known for its Creative
     > Cloud apps, Photoshop (#1 in photo editing, raster
     > graphics), Illustrator (#1 in drawing, vector graphics),
     > InDesign (#1 in page layout), and Premiere Pro (#1 in
     > video editing). Its apps are used by graphic designers,
     > photographers, publishers, video producers, animators,
     > and other creative professionals… ADBE’s apps are also
     > used by students, hobbyists, and part-time artists.

This large-size company has grown sales and EPS at annualized rates of 19.7% and 35.7% per year since 2013 and 2015 (previous two years of fractional EPS excluded), respectively. Lines are up, mostly straight, and parallel with the exception of an EPS dip in ’21 and nearly flat YOY EPS in ’22. PTPM over the last 10 years is roughly equal to the industry and just less than peer averages increasing from 8.8% in ’13 to 34.1% in ’22 with a last-5-year average of 32.5%.

ROE over the last 10 years is roughly equal to the industry and just less than peer averages increasing from 4.1% in ’13 to 32.7% in ’22 with a last-5-year average of 33.4%. Debt-to-Capital has been less than peer and industry averages going from 18.4% in ’13 to 24.8% in ’22 with a last-5-year average of 26.8%. Interest Coverage and Quick Ratio are 53.3 and 1.0, respectively. M* rates the company Exemplary for Capital Allocation while Value Line gives an A+ rating for Financial Strength.

I forecast long-term annualized sales growth of 10% based on the following:

• CNN Business projects 9.7% YOY and 10.8% per year for ’23 and ’22-’24, respectively (based on 28 analysts).
• YF projects YOY 9.6% and 11.8% for ’23 and ’24, respectively (32 analysts).
• Zacks projects YOY 9.1% and 10.8% for ’23 and ’24, respectively (10).
• Value Line projects 13.0% growth per year from ’22-’27.
• CFRA projects 11.4% YOY and 11.6% per year for ’23 and ’22-’24 along with a 3-year CAGR of 15% (analyst note).
• M* offers a 2-year ACE estimate of 10.6% per year while projecting 5-year annualized growth of 11% in its analyst note.

I am forecasting below the long-term-estimate range.

I forecast long-term annualized EPS growth of 11% based on the following:

• CNN Business reports ACE of 13.0% YOY and 13.2% per year for ’23 and ’22-’24, respectively (based on 28 analysts), along with 5-year annualized growth of 15.0%.
• MarketWatch projects 13.5% and 13.8% per year from ’22-’24 and ’22-’25, respectively (35 analysts).
• Nasdaq.com projects 13.2% YOY and 12.4% per year for ’24 and ’23-’25 (12, 11, and 2 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 14.7%.
• YF projects YOY 13.1% and 13.5% for ’23 and ’24, respectively (30), along with 5-year annualized growth of 14.0%.
• Zacks projects YOY 12.4% and 12.5% for ’23 and ’24, respectively (12), along with 5-year annualized growth of 13.4%.
• Value Line projects 14.1% growth per year from ’22-’27.
• CFRA projects 14.5% and 14.8% per year for ’22-’24 and ’22-’25 along with 3-year projected CAGR of 15%.
• M* has long-term ACE at 14.1% per year.

I am forecasting below the long-term-estimate range (mean of six: 14.2%).

My Forecast High P/E is 35. High P/E has ranged from 47.9 (’16) to 141 (’14) over the last 10 years with a last-5-year average of 58.4. I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 23. Low P/E has ranged from 23.6 (’20) to 102 (upside outlier in ’14) with a last-5-year average of 31.8. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $233.50. This is 36.7% less than the previous closing price and 15.0% less than the 52-week low.

These inputs land ADBE in the HOLD zone with an U/D ratio of 1.7. The Total Annualized Return (TAR) is 10.2%. PAR (using Forecast Average—not High—P/E) is 6.1%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 565 studies done in the past 90 days (104 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.0%, 12.8%, 42.0, and 28.9. I am lower across the board. Value Line projects a future average annual P/E of 34.0, which is lower than MS (35.5) and higher than mine (29.0). MOS seems robust.

With regard to other data, MS high and low EPS are $18.64/share and $10.12/share compared to my $17.10 and $10.15. My high EPS is lower due to a lower forecast growth rate. The MS LSPF of $274.70 implies a Forecast Low P/E of 27.1 (vs. 28.9), is 6.4% less than the $10.15 * 28.9 = $293.34 default value, and is 15.0% higher than mine.

I would look to re-evaluate the stock under $324/share.