Adobe Systems Inc. ADBE is set to report first-quarter fiscal 2015 results on Mar 17. Last quarter, the company posted a 29.41% positive earnings surprise. Let’s see how things are shaping up for this announcement.
Factors at Play
Adobe’s fourth-quarter fiscal 2014 earnings surpassed the Zacks Consensus Estimate by 5 cents. Revenues of $1.073 billion were up sequentially as well as year over year driven by growth across all its product lines, including CS cloud initiative and digital media products.
Also, gross margin of 85% was up 70 basis points from 84.3% in the comparable year-ago quarter driven by favorable mix.
Attractive pricing, as well as frequent product, feature and service enhancements continue to drive Adobe’s Creative Cloud subscription growth. Also, the increased adoption of the company’s marketing cloud could serve as a potential catalyst, boosting revenues in the first quarter. In our view, the company’s growth strategies and solid execution are the other growth drivers for the to-be-reported quarter results.
For the first quarter, management expects revenues in the range of $1.050 to $1.100 billion. Based on a share count of 508–510 million, GAAP earnings are expected in the range of 14–20 cents per share, while non-GAAP earnings are expected within the 34–40 cents range.
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 27 cents. Hence, the difference is 0.00%.
Zacks Rank: Adobe’sZacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
You could consider the following stocks with a positive Earnings ESP and a Zacks Rank #1, 2 or 3:
The Marcus Corporation MCS, with an Earnings ESP of +75.00% and a Zacks Rank #1 (Strong Buy).
Sonic Corp. SONC, with an Earnings ESP of +8.33% and a Zacks Rank #1.
G-III Apparel Group, Ltd. GIII, with an Earnings ESP of +2.41% and a Zacks Rank #1.
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