Adobe Systems Inc. ( ADBE )is set to report fourth-quarter 2013 results on Dec 12. Last quarter, it posted in-line results. Let's see how things are shaping up for this announcement.
Growth Factors this Past Quarter
Adobe's third-quarter earnings of 22 cents exceeded the Zacks Consensus Estimate by a penny due to solid cost management. However, revenues were down sequentially and at the lower end of management's guidance range due to faster-than-expected shift to subscription pricing model leading to more deferred revenues.
Margin expansion was limited due to the change in sales mix, which favored lower-margin products.
Adobe provided a decent outlook for the fourth quarter, with revenues forecasted to increase 3.0% sequentially. Adobe expects non-GAAP earnings per share in the range of 28 cents-34 cents, above the Zacks Consensus Estimate of 19 cents.
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 19 cents. Hence, the difference is 0.00%.
Zacks Rank: Adobe's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
You could consider other stocks with a positive earnings ESP and a Zacks Rank #1, 2 or 3 such as:
Winnebago Industries, Inc. ( WGO ), with Earnings ESP of +10.26% and a Zacks Rank #1 (Strong Buy).
Worthington Industries, Inc. ( WOR ), with Earnings ESP of +3.57% and a Zacks Rank #2 (Buy).
FactSet Research Systems Inc. ( FDS ), with Earnings ESP of +0.81% and a Zacks Rank #2 (Buy).