YEXT - Do strong earnings from Adobe make the stock a buy?

2023-03-20 14:33:59 ET

Adobe ( NASDAQ: ADBE ) has traded higher in 2023, recovering some of the losses posted in a dismal 2022. However, the stock has seen choppy action since reaching its year-to-date high in February.

Last week, the design software maker announced a strong earnings report, which has launched a renewed upswing in recent days. In Monday's intraday trading, the stock is on track for its 5th straight positive session, leaving shares +7% so far in 2023.

Is the latest earnings report the start of a renewed upswing for the stock, making it a potential buy at these levels?

Strong Earnings

Last Wednesday, Adobe ( ADBE ) came out with its latest earnings report , which sparked a wave of buying. Shares climbed 6% in the session following the announcement of the financial figures, with momentum carrying forward into the next couple sessions. Since the earnings report, the company has jumped 8.6% and now trades at levels not seen since February 17.

This came as Adobe announced Q1 Non-GAAP EPS of $3.80, which beat estimates by $0.12. At the same time, the company also topped revenue estimates by $40M, posting a top-line figure of $4.66B (+9.4% Y/Y).

Commenting on the results, Shantanu Narayen, Adobe’s CEO stated : “Adobe had a strong Q1, driving record revenue across our Creative Cloud, Document Cloud and Experience Cloud businesses.”

Is ADBE a Buy?

In general, Wall Street experts view Adobe ( ADBE ) as a Buy. Of the 37 analysts surveyed by Seeking Alpha , 19 have given the stock either a Buy or Strong Buy rating.

In this bullish clique, 14 see the company as a Strong Buy and 5 have rated the San Jose-based software giant as a Buy. The remaining 18 analysts included in the data see the organization as a Hold.

Currently, Adobe trades near $361, but the Street has an average price target of $397.56. This indicates room for a 9.7% upside move. The high-end price target sits at $557.70 and the low-end target is $321.

Seeking Alpha’s Quant Ratings , which judge a stock based on quantitative measures, are even more optimistic. The system views Adobe as a Strong Buy, driven by an A+ grade for profitability. At the same time, the Quant Ratings provide the company with a B- as it pertains to momentum, a C- for growth and a D for valuation.

See a complete breakdown of the above information:

What Others Say

Seeking Alpha contributor MM Research is firmly in the bullish camp, designating the stock as a Buy . "I believe Adobe is currently trading right around its intrinsic value and is worth buying," the analyst stated.

On the other side of the ledger, fellow SA contributor Paulo Santos views ADBE as a Sell . "There's a paradigm shift, which could make Adobe's business be a lot less necessary than before," Santos argued.

Other Approaches

For investors who are unsure about the stance of Adobe but still want exposure to the software company, exchange traded funds represent an alternative investment vehicle. Currently, Adobe is held by 337 different funds. See below the top five weighted allocations towards the info tech giant:

• iShares Expanded Tech-Software Sector ETF ( IGV ) at 8.07%. Direxion Daily Software Bull 2X Shares ( SWAR ) at 6.39%.
• UPHOLDINGS Compound Kings ETF ( KNGS ) at 6.23%.
• Optimize AI Smart Sentiment Event-Driven ETF ( OAIE ) at 5.03%.
• Direxion Daily Cloud Computing Bull 2X Shares ( CLDL ) at 4.74%.

Aside from the ETF front, investors could look at some of ADBE's competitors. These names include Salesforce ( CRM ), Qualtrics International ( XM ),and Yext ( YEXT ).

Graphics chipmaker Nvidia kicks off an annual GTC event and goes into more detail about its plans for the artificial intelligence market. Officials from Adobe are scheduled to appear at GTC and discuss their advances in the AI market.

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