Option Trade
Adobe Systems Incorporated (NASDAQ:ADBE) Calls 
Tuesday, 21st June, 2016

** OPTION TRADE: Buy the ADBE OCT 2016 100.000 call at approximately $5.25. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.10.

by Ian Harvey

June 21, 2016

Adobe Systems Incorporated (NASDAQ: ADBE), a San Jose, Calif.-based software products and services provider for professionals, marketers, application developers, enterprises and consumers, is set to post its quarterly earnings results after the market closes today, Tuesday, June 21.

For the May-ended quarter, Adobe is projected to report a 42% hike in earnings per share to 68 cents and a 21% sales increase to $1.4 billion. Those estimates would represent earnings and sales growth of 54.41% and 19.80%, respectively.

In each of the trailing four quarters, Adobe has beaten the Consensus Estimate by an average of 9.05%. The stock is up a slight 3.5% on the year, and the company owes most of its recent success to its shift to cloud-based technology.

Adobe continues to shifts from its legacy perpetual license model to its cloud-based software-as-a-service model, where software is delivered on demand over the internet.

Adobe has three cloud divisions: Creative Cloud, Marketing Cloud, and Document Cloud. By now, most have heard of Creative Cloud, its largest cloud business, which includes software such as Photoshop and Illustrator.

The decline of Flash has served to push Adobe away from its traditional products and into new areas of the technology world. With the often solid margins that come with the cloud business, this is proving to be a good thing.

Adobe shares climbed 2.5% to 97.99 at the close on the stock market yesterday. The stock rose to 98.75 intraday, briefly re-entering buy range after spending last week below the buy point at 98.10.

The company’s 50-day moving average price is $96.89 and its 200-day moving average price is $91.46. The company has a market capitalization of $47.81 billion and a price-to-earnings ratio of 60.88. Adobe Systems Incorporated has a one year low of $71.27 and a one year high of $100.56.

Adobe Systems had its “buy” rating reaffirmed by analysts at Rosenblatt Securities last week. They now have a $112.00 price target on the stock.

Separately, TheStreet Ratings has set a "buy" rating and a score of A- on Adobe Systems stock. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that TheStreet Ratings covers.

The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. Although the company may harbor some minor weaknesses, TheStreet Ratings feels they are unlikely to have a significant impact on results.

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

• Credit Suisse upped their target price on Adobe Systems from $65.00 to $70.00 and gave the stock a “neutral” rating in a report on Wednesday, June 1st.

• Barclays upped their target price on Adobe Systems to $75.00 in a report on Tuesday, June 7th.

• Goldman Sachs reiterated a “neutral” rating and set a $100.00 target price on shares of Adobe Systems in a report on Thursday, June 9th.

Seven investment analysts have rated the stock with a hold rating and twenty-one have issued a buy rating to the company. Adobe Systems presently has an average rating of “Buy” and an average price target of $102.31.

Harvey’s Options Volatility Indicator

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

** OPTION TRADE: Buy the ADBE OCT 2016 100.000 call at approximately $5.25. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.10.

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

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Options traders win because they are successful.

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