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Adobe’s Q2 Earnings Soared on Pandemic-Led Demand

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Jun. 12 2020, Updated 8:53 a.m. ET

Adobe (NASDAQ:ADBE) stock rose close to 4% in extended trading on Thursday. The software company posted its earnings for the second quarter of fiscal 2020, which ended May 29, after the markets closed. Adobe reported mixed results in the second quarter. Although the EPS beat analysts’ consensus expectation, the sales missed the estimates. However, the shares rose. The work-from-home shift amid COVID-19 drove subscription sales higher.

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Adobe’s earnings results for Q2 2020

In the second quarter, Adobe reported an adjusted EPS of $2.45 compared to $1.83 in the second quarter of fiscal 2019. The earnings beat analysts’ consensus estimate of $2.33 per share. Adobe generated sales of $3.13 billion—a growth of 14.0% from the second quarter of fiscal 2019. The company missed analysts’ consensus revenue estimate of $3.16 billion. In the second quarter, Adobe’s subscription sales rose 17.0% YoY (year-over-year) to $2.87 billion due to its expanding subscriber base.

In the second-quarter earnings release, Adobe CEO Shantanu Narayen said, “Adobe’s strategy to empower customers to create the world’s content, automate critical document processes and enable enterprises to engage with their customers digitally, drove record revenue in Q2.” Narayen also said, “The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis.”

Adobe expects its total revenues to be around $3.15 billion in the third quarter. Meanwhile, the company expects its non-GAAP EPS to be around $2.40 for the third quarter.

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Wall Street analysts expect Adobe to report an adjusted EPS of $2.42 on revenue of $3.18 billion in the third quarter. Analysts also expect Adobe’s revenues to rise by 14.6% YoY in fiscal 2020 to $12.80 billion. The sales could rise by 15.6% YoY in fiscal 2021 to $14.8 billion. The adjusted earnings will likely rise by 23.9% YoY in fiscal 2020 to $9.75 per share. However, the profits could rise by 14.1% YoY to $11.12 per share in fiscal 2021.

Analysts’ recommendations and target price

Among the 28 analysts following Adobe stock, 19 recommend a “buy,” while nine recommend a “hold.” None of the analysts recommend a “sell.” Wall Street analysts have a 12-month target price of $402.13 for Adobe stock. Overall, the target price implies an upside potential of 3.7% compared to the stock’s closing price on Thursday. The consensus target price for the stock has risen from $339.13 in May—a growth of 18.6%.

Many analysts revised their target price for Adobe stock after its second-quarter earnings report.

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  • Piper Sandler increased its target price from $350 to $430.
  • Credit Suisse increased its target price from $415 to $425.
  • J.P. Morgan increased its target price from $325 to $430.
  • Cowen and Company increased its target price from $365 to $400.
  • Baird increased its target price from $345 to $460.
  • Jefferies increased its target price from $450 to $470.
  • Wells Fargo increased its target price from $290 to $375.
  • Evercore ISI increased its target price from $420 to $440.
  • RBC Capital increased its target price from $325 to $440.
  • BMO Capital increased its target price from $375 to $440.
  • Wedbush increased its target price from $315 to $410.
  • Goldman Sachs increased its target price from $305 to $350.
  • Morgan Stanley increased its target price from $375 to $450.

Stock returns

Adobe stock fell 4.7% on Thursday and ended the day at $387.67. At this closing price, the company’s market cap is $186.8 billion. Notably, the stock is trading 5.4% below its 52-week high of $409.98 and 52.0% above its 52-week low of $255.13.

Based on the closing price on Thursday, Adobe stock was trading 1.1% above its 20-day moving average of $383.42. The stock is also trading 8.7% above its 50-day moving average of $356.55 and 10.9% above its 100-day moving average of $349.55. Adobe’s 14-day RSI (relative strength index) score is 56. An RSI score between 30 and 70 indicates that the stock isn’t overbought or oversold.

Adobe stock has an upper Band level of $407.11, while its lower Bollinger Band level is $359.72. On Thursday, the stock closed near its middle Bollinger Band level of $383.42, which indicates that it’s neutral.

On Thursday, Autodesk (NASDAQ:ADSK) and SAP (NYSE:SAP) stocks fell by 7.4% and 5.2%, respectively. The S&P 500 and the Dow Jones Industrial Average fell by 5.9% and 6.9%, respectively. Read S&P 500 Valuation: Are Investors Paying Too Much for Too Little? to learn more.

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