Adobe Lifts FY21 Outlook After 1Q Beat; Street Sees 22% Upside

Adobe reported strong 1Q results wherein revenues and earnings topped Street estimates as well as marked solid year-over-year improvements. Buoyed by a strong quarterly performance, the software maker raised its outlook for fiscal 2021.

Adobe’s (ADBE) 1Q adjusted earnings soared 38% to $3.14 per share year-over-year and surpassed analysts’ expectations of $2.79. Moreover, revenues of $3.91 billion came ahead of consensus estimates of $3.76 billion and registered a year-on-year increase of 26%.

Revenues in the Digital Media business unit jumped 32% to $2.86 billion. Meanwhile, the Digital Experience division’s sales grew 24% to $934 million. The company’s quarterly results benefited from strong demand for its software and an extra week during the fourth quarter.

Adobe raised its fiscal 2021 outlook and projects revenues of $15.45 billion, up from its previous guidance of $15.15 billion. It raised its adjusted EPS forecast to $11.85, up from its earlier projection of $11.20.

For 2Q, the company expects to report revenues and adjusted earnings of approximately $3.72 billion and $2.81 per share, respectively. (See Adobe stock analysis on TipRanks)

The company’s CEO Shantanu Narayen said, “Adobe drove record Q1 revenue and we are raising our annual targets based on the tremendous opportunity across our business and our continued confidence in our global execution.” He further noted that “Adobe’s Creative Cloud, Document Cloud and Experience Cloud have become mission critical to all customer segments—from students to individuals to large enterprises—across the world.”

Ahead of the earnings release, RBC Capital analyst Matthew Hedberg reiterated a Buy rating and price target of $575 (25% upside potential) on the stock. Hedberg expected the company to report strong 1Q results across the board.

Overall, the Street has a Strong Buy consensus rating on the stock based on 9 Buys and 1 Hold. The average analyst price target of $562 implies upside potential of over 22% to current levels. Shares have gained nearly 55.8% over the past year.

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