Stock of Adobe rose after earnings, making it a good example of a 'growth-profit story' in software

Adobe ADBE +4.90% stock gained sharply in premarket trading early Thursday as Wall Street became more bullish after the software company beat earnings and guidance estimates despite tough macro conditions.

‍

In terms of setting achievable financial targets, analysts were pleased with the company's cautious approach. FactSet data show seven analysts increased their price target on Adobe (ticker: ADBE) following the company's earnings late Wednesday. $388.62 is the average target price, which implies a 17% upside from Wednesday's closing price.

‍

Wall Street may be more optimistic than it has been in the past, but they are still on the fence when it comes to Adobe, however, with 50% of those covering the stock rating it Buy, with the other half rating it Hold.

‍

Stocks rose 5.8% to $353 in premarket trading Thursday. As of Wednesday's close, the shares had fallen 0.9% since the beginning of the year.  

‍

“Based on current demand trends and recent execution, we believe that investors will appreciate our prudent outlook on the macro landscape, even if, based on recent execution, we continue to believe the upside is likely in the near term,” Matthew Swanson, an analyst at RBC Capital Markets, said. A price target of $395 was set for the stock, and he maintained an Outperform rating on it.

‍

“The company's prudent approach to financial targets has led to better quarterly execution,” according to Oppenheimer analyst Brian Schwartz. He maintained a Perform rating for the stock, citing uncertainty over the company's $20 billion acquisition of collaborative design tool provider Figma. Regulators might try to block the deal, but the company plans to fight them.

‍

Analysts at Evercore ISI were more bullish than Evercore ISI, giving the stock an Outperform rating and a target price of $425, but they said that it had little chance of moving much higher until the Figma acquisition was completed. “Despite their belief that the stock might be trapped in a bit of a range near-term until the Figma deal is closed, the analysts are positive about Adobe's prospects into FY23 and believe it will be one of the better 'growth + profit' stories in the industry at large.”

‍

For Adobe's fiscal first quarter ended March 3, the company reported revenue of $4.66 billion, a 9% increase from a year ago as well as higher than Wall Street's consensus estimate of $4.62 billion. As a result, adjusted earnings per share of $3.80 were reported by the company, eclipsing estimates of $3.68 per share.

‍

Adobe expects its revenues to range from $4.75 billion to $4.78 billion during the second quarter, and its adjusted profit to range from $3.75 to $3.80 per share, both of which are above analysts' expectations for sales of $4.75 billion and earnings of $3.76 per share at the time of the earnings release.