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The Ratings Game: Adobe stock heads for worst day in 21 months after 2022 outlook disappoints

Adobe Inc. shares were on track for their worst day in 21 months Thursday after issuing a weaker-than-expected outlook.

Adobe ADBE, -10.19% shares opened down 8.2%, fell nearly 12% to an intraday low of $556.15, but experienced a slight recovery about an hour and a half into the company’s analyst day, which started at 11 a.m. Eastern. Shares were last down 10.8% at $562.17, putting them on track for their largest one-day drop since March 16, 2020, when shares closed down 11.8%, according to Dow Jones market data.

Adobe reported its fourth-quarter results ahead of the analyst day presentation Thursday. While the company’s earnings were in-line with Wall Street expectations and revenue slightly beat estimates, its forecast for 2022 fell short.

Adobe forecast fiscal first-quarter earnings of $3.35 a share on revenue of $4.23 billion, while the Street was looking for $3.39 a share on revenue of $4.33 billion, according to FactSet. Similarly, Adobe forecast full-year earnings of $13.70 a share on revenue of $17.9 billion, while the Street expected $14.26 a share on revenue of $18.16 billion.

Evercore ISI analyst Kirk Materne, who has an outperform rating and a $725 price target, said there was “a lot of noise” on Adobe’s full-year outlook, given foreign-exchange headwinds and a tough comparison to last year’s fiscal first quarter.

“It’s also worth keeping in mind that Adobe usually blows away its initial guide,” Materne said. “However, shares were lacking momentum heading into the print and we expect Adobe could remain in a bit of a trading range until it reports F1Q results (Mar.) when it will lap its tough comp and estimates can start pushing higher.”

Citi Research analyst Tyler Radke, who has a neutral rating and a $678 price target, said the outlook suggests that Adobe’s digital-media sales would see a year-over-year decline.

“With two consecutive softer quarters, we expect investors to grow increasingly wary that Adobe is facing new headwinds — either reopening or competitive,” Radke said.

Of the 31 analysts who cover Adobe, 25 have buy ratings and six have hold ratings, with an average target price of $720.69, according to FactSet.

Adobe shares are up 15% over the past 12 months, compared with a 12% gain in the iShares Expanded Tech-Software Sector ETF IGV, -3.14%, a 26% gain in the S&P 500 index SPX, -0.87%, and a 20% rise in the tech-heavy Nasdaq Composite Index COMP, -2.47%.

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