For Immediate Release
Chicago, IL - October 24, 2017 - Zacks Equity Research highlights AdobeADBE as the Bull of the Day and TeslaTSLA as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alphabet Inc . GOOGL .
Here is a synopsis of all three stocks:
On October 18, Adobe hosted a financial briefing with investors and analysts at its Adobe MAX user conference in Las Vegas. There management unveiled the company's growth strategy and outlook for the coming fiscal year beginning December 1.
While Adobe's September 19 report for their fiscal Q3 (ended August) delivered record revenues and a modest 10% earnings beat that inspired analysts to raise EPS estimates slightly for next year, the new financial guidance last week compelled another 4.5% jump in the EPS consensus for 2018 to $5.38.
Highlights of the event included these projections from the company...
Adobe's total addressable market (TAM) for all divisions will hit $83 billion by 2020
Revenue growth of 20% to $8.7 billion
Digital Media segment revenue growth of 23%
Adobe Experience Cloud subscription revenue growth of 20%
Adobe Experience Cloud total revenue growth of 15%
GAAP earnings per share of $4.40
Non-GAAP earnings per share of $5.50 representing approximately 30% growth
Digital Media Annualized Recurring Revenue ("ARR"): approximately $1 billion of net new ARR
Adobe Experience Cloud bookings: approximately 20 percent annual growth
Wall Street Reluctant to Pay for this Growth?
Here's what I told my TAZR Trader subscribers in June when we bought ADBE shares under $145...
It's not even a Zacks #2 Rank yet, but it will be soon after this week's earnings beat and guide above consensus on both sales and EPS. The valuation is rich, but this company has uniquely embedded itself in the creative, marketing and publishing needs of corporate America. Bank of America posted the highest price target raise at $184, Piper Jaffray moved to $180, and JPMorgan upped theirs to $170.
And here was more news this week for our premier "creative digital-studio SaaS powerhouse" that will further embed their platform in ad agencies, media platforms, and corporate in-house branding infrastructure...
Adobe Systems Incorporated today announced it has acquired all SkyBox technology from Mettle, a global developer of best-in-class 360-degree and virtual reality software. The acquisition comes at a time when increasing numbers of creators, global brands and media and entertainment companies are embracing 360/VR and are looking for seamless, end-to-end workflows for this new, immersive medium. The Skybox toolset is designed exclusively for post-production in Adobe Premiere Pro CC and Adobe After Effects CC and complements Adobe Creative Cloud's existing 360/VR cinematic production technology. Adobe will integrate SkyBox plugin functionality natively into future releases of Premiere Pro and After Effects.
(end of June 22 TAZR commentary excerpt)
Unfortunately, I gave up on ADBE by mid-August as it seemed that investors were just not willing to pay much more than a 30X multiple for being what I called an embedded "creative digital-studio SaaS powerhouse."
Me of little faith. Investors and analysts were jolted by the Adobe presentation in Las Vegas last week and the next day ADBE shares jumped over 12% from $153 to $172.
And Wall Street investment bank ratings and price targets jumped as well...
- Oppenheimer: Rating from Buy to Outperform and boost PT from $153 to $190
- Barclays: Overweight and PT from $167 to $181
- Bank of America: Buy and launch PT from $184 to $213
- Citigroup: Buy and bump PT from $163 $177
- Royal Bank Of Canada: Outperform and PT $177
- Credit Suisse: Outperform and PT from $170 to $190
- Stifel Nicolaus: Buy and PT from $163 to $175
- Canaccord Genuity: Buy and PT from $170 $185
- BMO Capital Markets: Outperform and PT from $165 to $187
- Piper Jaffray: Buy and PT $195
- JPMorgan Chase: Buy and PT $185
To understand the digital media growth opportunities, and the product/technology platforms that Adobe will use to capitalize on them, I highly recommend visiting their investor relations website to view the October 18 slide deck with all the details.
Until then, definitely look for dips to buy ADBE. But I don't see it filling the gap back to $153 any time soon, so have a plan ready to buy under $170.
Tesla has once again slipped to a Zacks #5 Rank as earnings estimates got ahead of themselves and then were recently dialed back.
To be fair, this business is quite the moving target for analysts and the variance of outlooks among them is large.
For instance, Bank of America and JPMorgan analysts have price targets of $155 and $195, respectively, while Piper Jaffray and Guggenheim analysts hold $386 and $430 targets.
Further amidst the bulls, it's worth noting that Morgan Stanley just raised their PT from $317 to $379 this month, and long-time faithful bulls at Robert Baird reiterated their $411 target last month.
But one investor towers above them all. Money manager Ron Baron, whose family of a dozen funds oversees $25 billion, has been a long-time Tesla bull and when he made an appearance on CNBC this summer he reiterated his call for TSLA shares to soar...
"I think it is going to be about $500 to $600 next year, and I think it is going to be $1,000 in 2020."
Baron obviously sees Tesla as being a significant force in the auto industry. And he's a savvy long-term investor who is good at spotting consumer and technology trends.
In fact, I followed his lead in Mobileye, the Israeli maker of Advance Driver Assistance Systems (ADAS) machine learning technology, before Intel bought the company for $15 billion this year.
Let's take a closer look at the near-term doubt about Baron's view.
Where's the Growth?
Some of the bulls had expected Tesla to turn consistently profitable in 2018. Others have anticipated production delays with the new Model 3 and see the company as able to deliver its first profitable year in 2019.
The shifting sands here are typical not only of a new car company but also of one with such a transformational business model.
What the bulls hope is that Model 3 demand will be strong and that Tesla is able to generate 25% gross margins on the vehicle at a price point in the mid-$40,000s.
Despite the big Q2 earnings beat in August which helped propel shares back to the all-time highs above $385 that were first achieved in June, earnings estimates have been headed down.
Two months ago, the consensus EPS projection for this year was a loss of $6.39. That has since fallen back to ($6.84).
The 2018 consensus dropped from a loss of $1.12 to ($1.23) in the past 60 days.
Oppenheimer analysts felt compelled to drop their 2017 EPS estimate from ($4.95) to ($7.02).
And yet they remain in the camp of seeing a profitable 2018, sticking with their far-above-consensus profit projection of $1.64 next year.
3 Key Estimates for GOOGL's Q3 Earnings Report
Shares of Alphabet Inc. were down more than 1.5% in early afternoon trading Monday, just days before the Google parent is scheduled to release its Q3 earnings report. Right now, Alphabet seems to be dealing with hardware concerns related to its new Pixel 2 phones, but investors should certainly still expect the company's earnings announcement to hog the headlines this week.
While a shift to mobile computing once threatened Google's traditional search business, management has successfully adapted to changing consumer trends by expanding its operations into nearly every corner of the modern tech world.
Today, Google and the other subsidiaries under the Alphabet umbrella sit on the cusp of dominance in several booming industries, including cloud computing, mobile payments, ecommerce, and artificial intelligence. Of course, search is still the company's bread and butter, but there's plenty more to be excited about if you're an Alphabet investor right now.
Shares of GOOGL have gained nearly 27% year-to-date, and the stock is currently sporting a Zacks Rank #3 (Hold). What's more, Alphabet has met or surpassed the Zacks Consensus Estimate in four out of the five trailing quarters. Plus, with the stock's positive Earnings ESP of 1.77%, investors can feel more confident about the possibility of another earnings beat.
Heading into Alphabet's report date, our current consensus estimates are calling for the company to post earnings of $8.39 per share and revenues of $21.94 billion. While GOOGL's profits are projected to slump about 7.4% year-over-year, the company's top line growth is expected to hit an impressive 20.1%-underscoring the potential for its expansion efforts to pay off down the line.
Of course, earnings and revenue are just two of the many things investors will be looking at when Alphabet reports on Thursday.
First up, we should note that Google's advertising revenues are projected to swell by more than 18% in the quarter. Interestingly enough, Google's ad business has been a cause for some concern over the past few years. Advertisers tend to value mobile ads less, so a shift to a mobile-first world meant lower cost-per-click figures for Google.
Nevertheless, growth in total paid clicks has outpaced the decline in cost-per-click and led to rising advertising revenues. Last quarter, Alphabet narrowly edged our consensus estimate in this category and notched growth of 18.4%. If the company's core business can outperform our expectations again, investors should be ecstatic.
Still, Alphabet's most exciting growth prospects come from its "Google other revenues" category. This unit includes revenues from the company's Google Play Store, as well as its Google Cloud offerings and hardware initiatives.
Based on our latest consensus estimates, we expect Alphabet to report Google other revenues of $3.43 billion. That would represent growth of more than 41% from the $2.43 billion recorded in the year-ago period.
Finally, we should see impressive growth in Alphabet's mysterious "Other Bets" unit. The company uses this segment to lump together its smaller projects, and for the most part, these projects don't generate much revenue.
But some of the Other Bets subsidiaries-including Google Fiber, Nest, and Verily-are adding to Alphabet's top line. According to our consensus estimates, we expect Alphabet to report Other Bets revenues of $267 million this quarter, up from the $197 million seen last year.
Want more stock market analysis from this author? Make sure to follow @ Ryan_McQueeney on Twitter!
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.