If Adobe ADBE opened at its lowest position in two years on Friday, it was because of a series of price target reductions on Wall Street after the software provider’s weaker-than-expected forecast.
“Far better than expected” second-quarter results for Adobe (NASDAQ: ADBE), stated Deutsche Bank analyst Brad Zelnick, and most other analysts backed up his sentiment. A total of $4.39 billion was earned by the corporation, which was above expectations of $4.34 billion. EPS was $3.35, a nickel ahead of the company’s forecast and four pennies above the expectations of Wall Street.
However, the issue is with the direction. For the third quarter, Adobe expects sales of $4.43 billion and an adjusted profit of $3.33 per share. For the quarter, analysts predicted $4.51 billion in sales and $3.40 per share in net profit. Adjusted profits of $13.50 per share for the entire year, down from a previous estimate of $13.70 per share, are now forecasted for the year on $17.65 billion in sales, down from a previous estimate of $17 billion.
In premarket trade on Friday, shares of Adobe fell 3.4% to $352.78. Since May 4, 2020, the stock has not closed below that level. The company’s stock price is down 36% so far this year and 34% in the previous year.
Until Adobe returns to “beat/raise” mode, it will be difficult to change sentiment in a more favorable direction, particularly given the macro backdrop, noted Evercore ISI analyst Kirk Materne in a research note. Materne maintained an Outperform rating while lowering his price objective for the company from $650 to $475.
Oppenheimer’s Brian Schwartz similarly lowered his price target to $400 from $560, citing “an uneven execution trend in the reported outcomes” as the reason for the lower goal. For now, the company’s digital media sector revenue and operating margins are expected to continue declining until investors are more confident that these trends are temporary, he said. Shares of Schwartz were still rated “Outperform” by the analyst firm.
The conflict in Ukraine, negative currency rate impacts, higher effective tax rates, and lower-than-expected tax advantages, according to Adobe, affected Adobe’s forecast. The decision to withdraw from Russia and Ukraine has cost the corporation $75 million, according to CFO Dan Durn. According to Deutsche Bank’s Zelnick, the company’s guiding strategy was “prudent” in light of the current macroeconomic circumstances and enhances Adobe’s negotiation position in major enterprise purchases.
Although “we don’t think any software business is immune to the macro downturn, however, we do believe Adobe should fare better than others because of its leverage to a more digital future,” Zelnick stated.
Zelnick retained a Buy rating but dropped his price objective from $575 to $500 in light of lower expectations.
According to FactSet, RBC Capital Markets’ Matthew Swanson was one of the few analysts who did not modify his price target after the release of results. A $500 price target and an Outperform rating were maintained by Swanson, who noted that management’s forecast was “prudently restrained.” Net new digital media yearly recurring income came in 5% over expectations in the first half of the year, and the digital experience showed resiliency even in the face of near-term eCommerce challenges, according to Swanson.
According to FactSet, 84 percent of analysts have a Buy-equivalent rating on the company, while just 16 percent have a Hold recommendation.
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