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Will Adobe Systems (ADBE) Surprise Investors in Q2 Earnings?


Adobe Systems Inc. ADBE is slated to report second-quarter fiscal 2017 results on Jun 20. Last quarter, the company delivered a positive earnings surprise of 8.33%.

The surprise history has been good in Adobe’s case. The company surpassed estimates in each of the trailing four quarters with an average four-quarter positive surprise of 7.71%.

Shares of Adobehave been have been steadily treading higher for the last one year. The stock returned 41.5% compared with the Zacks Computer-Software industry’s gain of 31.7%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Adobe is being driven by continuous innovation in the Creative Cloud and Marketing Cloud businesses.

The Creative business under the Digital Media Solutions segment is witnessing acceleration in Creative Cloud subscriptions. Also, the conversion of enterprise customers to Enterprise Term License Agreements (ETLAs) is resulting in higher adoption of its enterprise Creative Cloud offering.

Increased subscription as well as ETLA and digital publishing suite adoption should drive Creative Cloud’s annualized recurring revenues.

We are also optimistic about Adobe’s market position, compelling product lines and balance sheet strength. Additionally, continued adoption of the Adobe marketing cloud could serve as a catalyst in the to-be-reported quarter.

Adobe posted strong fiscal first-quarter results with both earnings and revenues beating the Zacks Consensus Estimate. Revenues were up 4.6% sequentially and 21.6% year over year on the back of strong adoption of Creative Cloud.

However, lower end-market demand, increasing competition from Microsoft and Apple, and significant exposure to the economically-troubled European region could be matters of concern.

For fiscal second quarter, Adobe expects revenues of $1.73 billion. Based on a share count of 499 million, GAAP earnings are expected to be 66 cents per share and non-GAAP earnings are projected at 94 cents.

Earnings Whispers

Our proven model does not conclusively show that Adobe is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 77 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Adobehas a Zacks Rank #3, which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

You could consider the following stocks that have a positive Earnings ESP and a favorable Zacks Rank for their upcoming releases.

CSX Corporation CSX, with an Earnings ESP of +1.72% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Netflix, Inc. NFLX, with an Earnings ESP of +31.25% and a Zacks Rank #3.

ADTRAN, Inc. ADTN, with an Earnings ESP of +9.09% and Zacks Rank #3.

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