Will Adobe (ADBE) Disappoint This Earnings Season?

Zacks Equity Research

Adobe Systems Inc. (ADBE)is set to report fourth-quarter 2013 results on Dec 12. Last quarter, it posted in-line results. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Adobe’s third-quarter earnings of 22 cents exceeded the Zacks Consensus Estimate by a penny due to solid cost management. However, revenues were down sequentially and at the lower end of management’s guidance range due to faster-than-expected shift to subscription pricing model leading to more deferred revenues.

Margin expansion was limited due to the change in sales mix, which favored lower-margin products.

Adobe provided a decent outlook for the fourth quarter, with revenues forecasted to increase 3.0% sequentially. Adobe expects non-GAAP earnings per share in the range of 28 cents–34 cents, above the Zacks Consensus Estimate of 19 cents.

Earnings Whispers?

Our proven model does not conclusively show that Adobe will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 19 cents. Hence, the difference is 0.00%.

Zacks Rank: Adobe’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive earnings ESP and a Zacks Rank #1, 2 or 3 such as:

Winnebago Industries, Inc. (WGO), with Earnings ESP of +10.26% and a Zacks Rank #1 (Strong Buy).

Worthington Industries, Inc. (WOR), with Earnings ESP of +3.57% and a Zacks Rank #2 (Buy).

FactSet Research Systems Inc. (FDS), with Earnings ESP of +0.81% and a Zacks Rank #2 (Buy).

Read the Full Research Report on WOR
Read the Full Research Report on FDS
Read the Full Research Report on ADBE
Read the Full Research Report on WGO


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