When analysts overwhelmingly favor a particular company, this sends a clear signal to investors. Adobe (NASDAQ:ADBE) is well-liked among the analyst community, and I am bullish on ADBE stock, even if it seems expensive when you first look at it.
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California-based Adobe provides document, image, and security software, as well as other products (Photoshop is one of its most famous products). Notably, the company has a terrific track record of quarterly EPS beats, and 2023’s third quarter was quite strong for Adobe, as the company earned $4.09 per share versus the ambitious consensus estimate of $3.98 per share.
As with any other stock, a bearish argument could be built around ADBE stock. After all, every company has its share of challenges. Nevertheless, Adobe’s problems don’t appear to be overwhelming, and even value-focused investors might choose to set their objections aside and consider taking a share position in Adobe.
Why Some Investors Might Have a Problem with Adobe
Using a popular valuation metric, some skeptics may conclude that ADBE stock is overpriced now. Specifically, Adobe’s GAAP trailing 12-month price-to-earnings (P/E) ratio of around 51x is more than double the sector median P/E ratio of 24x.
Furthermore, Adobe’s stock chart clearly shows that it’s right near a 52-week high. Bear in mind, though, that sometimes, a highly-profitable business can continue to punish short sellers for a very long time.
Another perceived problem is that the U.K.’s regulatory entity, the Competition and Markets Authority (CMA), is investigating Adobe’s proposed $20 billion acquisition of Figma. In summary, Figma is a collaborative design tool and it would fit neatly into Adobe’s suite of software tools.
On the other hand, Adobe has thrived without Figma for a long time, as the company’s earnings beats demonstrate. Just think of Figma as the icing on the cake for Adobe. If the acquisition gets approved, that’s great. If not, it’s not the end of the world for Adobe.
Analysts Like Adobe’s AI Integration and More
In 2023, every technology company has to integrate artificial intelligence (AI) into its products. Okay, maybe it’s not the law, but it’s an unwritten rule imposed by an unforgiving market.
Adobe is complying with this unwritten rule. For example, the company recently unveiled an object-aware editing engine called Project Stardust. What’s special about this product is that it uses generative AI to enhance the image-editing process.
Other than that, Adobe has a “family of creative generative AI models” called Firefly. RBC Capital analyst Matthew Swanson specifically cited Firefly, along with Adobe’s strategic road map for generative AI generally, when he published an Outperform rating and $615 price target on ADBE stock not long ago.
Swanson expects Adobe’s deployment of generative AI to be more of a 2024-to-2025 benefit for the company. Still, the RBC Capital analyst anticipates that Q4 will be another “really strong quarter” for Adobe.
Meanwhile, DA Davidson upgraded Adobe shares from Neutral to Buy and lifted its price target on the stock from $500 to $640. That’s a big price hike, but DA Davidson backed it up by citing Adobe’s “robust and predictable revenue streams, sustainable competitive advantage, exceptional financials, a powerful brand, and a shareholder-oriented management team.”
Additionally, Oppenheimer analysts upgraded ADBE stock from Perform (equivalent to a Hold rating) to Outperform and assigned the stock a very ambitious $660 price target. As you might expect, the Oppenheimer analysts noted Adobe’s top position in the gen-AI software opportunity; patient Adobe investors will, they believe, be rewarded through the year’s end and into the next fiscal year.
Is ADBE Stock a Buy, According to Analysts?
On TipRanks, ADBE comes in as a Moderate Buy based on 20 Buys, seven Holds, and one Sell rating assigned by analysts in the past three months. The average Adobe stock price target is $609.85, implying 4.2% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell ADBE stock, the most profitable analyst covering the stock (on a one-year timeframe) is Derrick Wood of TD Cowen, with an average return of 28.97% per rating and a 77% success rate. Click on the image below to learn more.
Conclusion: Should You Consider ADBE Stock?
I have a funny feeling that the one analyst with a Sell rating on Adobe shares will end up changing his rating pretty soon. Adobe is a software-market winner through and through, and the company’s earnings beats prove the point. Also, Adobe is making a smart move as the company integrates generative AI into its products. Therefore, I wouldn’t obsess over Adobe’s valuation stats too much, and I believe the stock is worth considering.
