Option Trade
Adobe Systems Incorporated (NASDAQ:ADBE) Calls 
Tuesday, December 13, 2016

** OPTION TRADE: Buy the ADBE JAN 20 2017 105.000 call at approximately $3.90. Place a pre-determined sell at $8.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.55.

by Ian Harvey

Tuesday, December 13, 2016

Software maker Adobe Systems Incorporated (NASDAQ:ADBE) is scheduled to report its fourth-quarter results on December 15. When Adobe shares its fiscal fourth-quarter results, the analysts on average predict that its earnings per share will have grown by about 28 percent from a year ago to $0.86. The $1.59 billion in expected revenue would be more than 21 percent gain.

Adobe has a strong earnings track record, and the company has outpaced analyst estimates each of the last 12 quarters. The consensus calls for quarterly earnings of $0.86 per share, but the street has a slightly higher whisper number of $0.88. The whisper number suggests a strong likelihood that the company will outpace estimates again this quarter.

Adobe has moved to a cloud-based subscription approach to selling its software, but for the last two quarters it has opted to exclude Creative Cloud subscription numbers from its report, focusing instead on earnings and revenue growth. If the company hits the $0.88 whisper number, it would translate to 42% year-over-year bottom-line growth, and its revenue forecast of $1.59 billion would mark 21.4% year-over-year revenue growth. If Adobe can hit its estimates, the stock should trend higher on the report.

The stock is up 10.8% on the year.

Adobe Systems has a market cap of $52.14 billion, a PE ratio of 53.51 and a beta of 1.08. The firm’s 50 day moving average is $105.29 and its 200-day moving average is $101.78. Adobe Systems has a 12 month low of $71.27 and a 12 month high of $111.09.

Factors to Consider

Adobe is being driven by continuous innovation in the Creative Cloud and Marketing Cloud businesses.

The Creative business under the Digital Media Solutions segment is seeing acceleration in Creative Cloud subscriptions. Also, the conversion of enterprise customers to Enterprise Term License Agreements (ETLAs) is resulting in higher adoption of its enterprise Creative Cloud offering.

Increased subscription as well as ETLA and digital publishing suite adoption should drive Creative Cloud’s annualized recurring revenues.

There is also a positive feeling on Adobe’s market position, compelling product lines and balance sheet strength. In addition, it is believed that continued adoption of the Adobe marketing cloud could serve as a catalyst in the to-be-reported quarter.

Adobe posted strong fiscal third-quarter results with both earnings and revenues beating the Consensus Estimate. Revenues were up 4.7% sequentially and 20.4% year over year on the back of strong adoption of Creative Cloud.

Analyst Input

Cowen and Company set a $120.00 price target on Adobe Systems and gave the company a “buy” rating in a research report on Wednesday, December 7th.

Several other research firms have also issued reports on ADBE…..

  • BTIG Research restated a “neutral” rating on shares of Adobe Systems in a research report on Tuesday, December 6th.
  •  Zacks Investment Research cut Adobe Systems from a “hold” rating to a “sell” rating in a research report on Friday, December 2nd.
  • Vetr cut Adobe Systems from a “buy” rating to a “hold” rating and set a $112.28 price target for the company. in a research report on Monday, November 7th.
  •  Finally, Deutsche Bank AG restated a “buy” rating and issued a $125.00 price target on shares of Adobe Systems in a research report on Thursday, November 3rd.

Shares of Adobe Systems Inc have been given an average recommendation of “Buy” by the twenty-seven analysts that are covering the firm. One investment analyst has rated the stock with a sell recommendation, seven have given a hold recommendation and seventeen have given a buy recommendation to the company. The average 12 month target price among brokerages that have issued a report on the stock in the last year is $114.26.

Harvey’s Options Volatility Indicator

Conclusion               

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the ADBE JAN 20 2017 105.000 call at approximately $3.90. Place a pre-determined sell at $8.00.

 Note: No protective stop losses added -- but if you wish to do so make it $1.55.

 ”Success is simple. Do what's right, the right way, at the right time.”

 Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.

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