What is the market’s view of Adobe’s future operating performance as reflected in the current price of $507? Over the next 6 years, Adobe shares will need to reach $851 to achieve average annual stock market performance of 9.0%. Adobe’s stock price will need to reach $1001 by 2029 to achieve upper quartile performance.
Executive Summary
- Price Target Research identifies Adobe as having: high financial strength, stability, average profitability, and below average expected growth. A big positive influence on Adobe’s valuation is its superior Profitability.
- Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the Adobe Peer Group. Recent market returns have significantly outperformed the Adobe Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Adobe shares should reach a level of $577 by 2029 — an 2.2% per year total shareholder return. A 2029 stock price of $851 would reflect median performance and a price of $1001 would be required to reach upper quartile performance.
- Adobe’s past growth is slightly below average. Historical growth has been below average relative to the Adobe Peer Group and forecasted growth is relatively average. EPS Growth has lagged. This factor has negatively affected market perceptions of Adobe. Adobe’s historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has paralleled equity growth and return on equity has been stable. Adobe’s consensus growth expectations are lower than historical growth.
- Profitability is very high. The company has high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Adobe’s risk profile is very favorable. Overall variability has been relatively low with relatively low revenue variability, very low E.P.S. variability, and above average stock price volatility. Financial Strength is relatively very high and earnings’ expectations are only average. The debt/capital ratio has declined.
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