Adobe Systems is still a buy, Jeff Parent says

By all accounts, Adobe had a great year in 2019, finishing up 46 per cent and ending on a high note with strong quarterly numbers in December. The creative and digital media software company beat estimates for its fourth quarter revenue and profit, powered by strong subscriptions numbers from its digital media business which grew by 22 per cent.

Those results pushed the stock above the $312 mark and into new all-time highs, with no slowdown in sight as Adobe heads into the new year.

“This stock has been doing really, really well,” said Parent, vice president and chief investment officer for CasteMoore, to BNN Bloomberg on Friday. “Just to put it in perspective, in 2012, it was $32.”

“It took that pause with all of the other tech stocks [in late 2018] and when you look at the chart, especially the long-term chart, it looks like nosebleed territory and how much further can it go?” says Parent. “It’s broken into a new high on this gap up in mid-December. You’d want to keep holding it right now but you’d want to be careful if it drops down to about $315. I think at that point the market is going to reconsider this upward climb.”

“But right now it looks good and I wouldn’t hesitate to buy it,” he said.

For its fourth quarter ended November 29, Adobe posted revenue of $2.99 billion, up 21 per cent from a year earlier, where analysts’ consensus estimate was at $2.97 billion. The company’s net income climbed to $851.9 million or $1.74 per share. Earnings excluding items was $2.29 per share compared to the Street’s $2.26 per share. (All figures in US dollars.)

For the year, Adobe hit $11.17 billion in revenue, a 24-per-cent rise, and while the company’s outlook for its fiscal first quarter of 2020 was slightly muted at $3.04 billion compared to analysts’ consensus expectation of $3.09 billion, management painted a rosy picture going into 2020 with its cloud segment and strong subscription services leading the way.

“Adobe’s phenomenal performance in Q4 capped a record fiscal 2019 with revenue exceeding $11 billion,” said Shantanu Narayen, president and CEO, in the fourth quarter press release. “Adobe’s vision, category leadership, continuous product innovation and large and loyal customer base position us well for 2020 and beyond.”

One of Adobe’s attractive features has been its strong cash flow, which hit a record $1.38 billion over its Q4 2019. The cash allowed the company to continue its share repurchasing activities, which for 2019 totalled 9.9 million shares for about $2.7 billion.

US software fared well over the last stretch of 2019, with companies like Adobe, Microsoft (NASDAQ:MSFT) and Salesforce.com (NYSE:CRM) all ending the year on high notes.