“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, March 12, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

Option Trade - Adobe Systems Incorporated (NASDAQ:ADBE) Calls

Monday, March 12, 2018

** OPTION TRADE: Buy the ADBE APRIL 20 2018 230.000 CALL at approximately $4.50. Place a pre-determined sell at $9.00.

Also include a protective stop loss of $1.80.

The digital media and marketing software firm, Adobe Systems Incorporated (NASDAQ:ADBE), will release its most recent quarterly earnings report on Thursday, March 15, after the market closes. Analysts are calling for adjusted earnings of $1.43 per share and revenues of $2.04 billion. These results would represent year-over-year growth of 52% and 21%, respectively.

ADBE has emerged as one of the tech sector's hottest stocks lately, with shares gaining more than 80% over the past year, with hardly any type of sell-off along the way. And it has already gained another 23% so far in 2018.

One key reason for the rally is that Adobe has met or beat Street expectations for thirteen consecutive quarters. And there's not much reason to see that changing on Thursday. Adobe is coming off a Q4 report in December, where it easily beat Street expectations. In what the company calls its Creative Cloud business, Adobe simply dominates the market with programs like Photoshop and Illustrator. The company's marketing platform is even having success against entrenched incumbents Salesforce.com, Inc. (NYSE: CRM) and Oracle Corporation (NYSE: ORCL).

Influencing Factors

ADBE is at a more reasonable 30x forward earnings, so there's room for a further rally if the company can show yet another earnings beat. Analysts will raise their price targets - currently modestly below the ADBE stock price - adding more fuel to the rally. Even in this market, Adobe's combination of revenue growth and margin expansion should be enough to push the stock even higher.

Confidence in ADBE stems from the record-setting Q4. Adobe's revenues surged 25% year over year to hit $2.01 billion, while its full-year sales of $7.30 billion also marked a new high. Adobe also raised its fiscal 2018 guidance at the time.

Then, in late January, Adobe announced that the new Republican tax law would have a positive impact on the company and its investors. Adobe set a new 2018 revenue projection of $8.725 billion.

"The new Tax Act is lowering Adobe's effective tax rates, driving a significant increase in our earnings per share targets," CFO Mark Garrett said in statement. "With ready access to our offshore cash, we will continue to evaluate investment opportunities to grow our business and we are actively expanding our campuses in the Bay Area and Utah to accommodate the growth of our employee base."

These growth projections seem to be reflected in Adobe's current Q1 estimates. The San Jose, California-headquartered company is expected to see its earnings skyrocket 52% year over year. On top of that, the company's first-quarter sales are projected to reach $2.04 billion, which would mark a 21.4% surge. For the current full year, Adobe's bottom line is expected to climb nearly 43% to hit $6.16 per share.

Adobe has also recently earned a large number of estimate revisions for its current quarter, next quarter, current year, and following year earnings, with 100% agreement to the upside.

Adobe has matched or topped earnings estimates for 14 straight quarters, including a 9% average surprise in each of the trailing four periods.

On top of all of this, Adobe's EPS figure is expected to expand at an annualized rate of 16% over the next three to five years, which is solid for a company of its size and age.

Analysts and Hedge Funds Opinions

Argus increased their price target on Adobe Systems from $195.00 to $234.00 and gave the company a “buy” rating in a research note on Tuesday, January 30th.

Adobe Systems was upgraded by Zacks Investment Research from a “hold” rating to a “buy” rating in a research report issued to clients and investors on Tuesday, February 13th. The brokerage currently has a $215.00 target price on the software company’s stock. Zacks Investment Research‘s target price points to a potential downside of 2.76% from the stock’s current price.

According to Zacks, “Adobe has outperformed the industry it belongs to in the last one year. Adobe has been making great efforts toward establishing its presence in cloud-related software areas such as documents and marketing. Adobe Experience Manager, which enables brands to offer a personalized experience, is also witnessing robust growth. Year to date, the stock has outperformed the industry it belongs to. We remain optimistic about Adobe’s market position, compelling product lines, continued innovation, solid adoption of Creative Cloud and Adobe marketing cloud.  Also, its acquisition of TubeMogul will help the company to build its position in the expanding Digital Marketing space.”

Also, several other equities analysts have recently commented on the company…..

  • Royal Bank of Canada upped their price target on shares of Adobe Systems to $235.00 and gave the company an “outperform” rating in a report on Wednesday, February 28th.
  • Evercore ISI reaffirmed a “buy” rating and set a $220.00 price target on shares of Adobe Systems in a research report on Friday, January 26th.
  • Stephens reaffirmed a “buy” rating and set a $215.00 price target on shares of Adobe Systems in a research report on Tuesday, January 23rd.
  • Guggenheim restated a “buy” rating and issued a $230.00 target price on shares of Adobe Systems in a research note on Tuesday, January 23rd.
  • Finally, Canaccord Genuity restated a “buy” rating and issued a $220.00 target price (up from $195.00) on shares of Adobe Systems in a research note on Tuesday, January 23rd.

Eight research analysts have rated the stock with a hold rating, twenty-six have issued a buy rating and one has given a strong buy rating to the company’s stock. Adobe Systems presently has a consensus rating of “Buy” and an average target price of $198.94.

Institutional investors that have recently made a change to their positions in the stock….

  • Polen Capital Management LLC raised its holdings in shares of Adobe Systems by 1.2% during the 4th quarter. Polen Capital Management LLC now owns 6,362,305 shares of the software company’s stock worth $1,114,930,000 after acquiring an additional 73,489 shares in the last quarter.
  • Ameriprise Financial Inc. raised its holdings in Adobe Systems by 9.7% during the 3rd quarter. Ameriprise Financial Inc. now owns 5,543,635 shares of the software company’s stock valued at $826,991,000 after buying an additional 488,904 shares during the period.
  • Arrowstreet Capital Limited Partnership raised its holdings in Adobe Systems by 2.4% during the 4th quarter. Arrowstreet Capital Limited Partnership now owns 5,368,796 shares of the software company’s stock valued at $940,828,000 after buying an additional 128,148 shares during the period.
  • Wells Fargo & Company MN raised its holdings in Adobe Systems by 2.1% during the 3rd quarter. Wells Fargo & Company MN now owns 2,956,394 shares of the software company’s stock valued at $441,035,000 after buying an additional 59,616 shares during the period.
  • Finally, Egerton Capital UK LLP raised its holdings in Adobe Systems by 119.6% during the 4th quarter. Egerton Capital UK LLP now owns 2,932,074 shares of the software company’s stock valued at $513,817,000 after buying an additional 1,596,653 shares during the period.

Insider news……

Director Amy Banse purchased 1,125 shares of Adobe Systems stock in a transaction on Monday, December 18th. The stock was purchased at an average price of $177.35 per share, with a total value of $199,518.75. Following the transaction, the director now directly owns 31,453 shares in the company, valued at approximately $5,578,189.55.


Adobe Systems has a debt-to-equity ratio of 0.22, a current ratio of 2.05 and a quick ratio of 2.05. Adobe Systems Incorporated has a fifty-two week low of $120.24 and a fifty-two week high of $221.27. The company has a market capitalization of $111,460.00, a PE ratio of 65.42, a price-to-earnings-growth ratio of 2.64 and a beta of 1.10.