Three Reason’s It’s Time To Buy Adobe (NASDAQ:ADBE)

Adobe Is A Pandemic-Proof Stock

If Adobe (NASDAQ:ADBE) has proved one thing this year it is that its businesses are immune to the pandemic. As a leader in digital media, the company is well-positioned for the ongoing shift to digitization and the cloud, a shift that was accelerated by the pandemic. After reviewing the FQ4 earnings report I am amazed to see the share price moving lower but that is ultimately a good thing. This stock is going higher over the long-term, this near-term weakness is nothing more than a buying opportunity.

 One (1): Adobe Is Delivering Results

Adobe reported stellar results for the quarter. The revenue of $3.42 billion is up 14.4% from the previous year and caps a fantastic F2020. The full-year results are a company record and will not be the last one set. Turning your attention back to the 4th quarter results, the top-line revenue is 1.7% better than expected and driven by strength in all categories. On a sequential basis, growth accelerated by 60 basis points.

The company’s core business, Digital Media, saw its revenue surge 20% over the last year and accounts for 73% of the quarterly take. The Creative and Cloud/Document businesses also saw YOY growth but at a much slower rate. The total of recurring revenue topped $10.15 billion on an annualized basis topping the $10B mark for the first time. Moving down to the bottom line, adjusted and GAAP EPS were both strong and beat consensus by wide margins. Adjusted EPS came in at $2.81 or better by $0.15 while the GAAP EPS of $4.64 beat by $0.53.

“Adobe delivered record Q4 and FY20 revenue performance amidst an unprecedented macroeconomic environment,” said Shantanu Narayen, president and CEO, Adobe. “As the undisputed leader in three growing categories - creativity, digital documents and customer experience management - we are well-positioned to capture the massive market opportunity ahead of us in 2021 and beyond.”

Two (2): Adobe’s Guidance Is Better Than Good

 Adobe’s FQ4 and 2020 results are all well and good but don’t mean much if the outlook for growth is dimming. And it’s not. The company’s guidance is well above the consensus and going to drive a massive reboot among the analysts. So far, the preliminary guidance for F2021 is calling for $15.15B in revenue versus the $12.18 consensus target. That is worth nearly 18% in YOY growth and 200 basis points of acceleration versus F2020. Regarding earnings, the adjusted earnings should come in around $11.20 versus the $9.95 expected by the analysts. Looking forward, based on the obvious momentum this company is showing, I expect execs to increase the guidance over the course of the fiscal year.

 Three (3): Adobe Just Approved $15 Billion In Buybacks

Adobe does not pay a dividend, sad to say, but it is an active buyer of its own shares. The company just approved a new authorization totaling $15 billion over the next four fiscal years. The new plan is in addition to the previous authorization for $8 billion which is expected to be used up in the 1st half of fiscal 2021. At today’s prices, that’s worth about 30 million shares or 6.45% of shares outstanding.

“The resilience of our business, our operational discipline and ability to derive insights from real-time data has enabled us to thrive in 2020,” said John Murphy, executive vice president and CFO, Adobe. “Our record Q4 cash flow demonstrates the strength of our operating model, and we look forward to delivering strong top and bottom-line growth in 2021.”

The Technical Outlook: Adobe Pulls Back To Support

Shares of Adobe pulled back following the release but price action is already showing signs of support. Early trading tested the short-term EMA and sparked a small rebound may confirm upside bias if not the start of a new rally. The indicators are mixed but are consistent with range bound trading at least so I do not expect to see shares pull back significantly. In the near-term, price action may remain range-bound but longer-term I expect to see this stock move up to set newall-time highs early in 2021.