Q4 Preview: Analysts Cautious on Adobe (ADBE) into Numbers, But Change is Coming

Adobe (Nasdaq: ADBE) shares are volatile Thursday heading into its fourth-quarter earnings report, expected out after the market closes. To go to the webcast homepage for its quarterly review, click here.

The Street is expecting earnings of 60 cents per share on revenue of $1.09 billion. Should Adobe meet earnings expectations, its result would be a 7 percent gain from the same period last year.

Shares gained 8.6 percent to $27.42 through the quarter and are down 3.3 percent since. The stock is down 13.9 percent over the course of 2011. Adobe has been in a range of 22.67 to $35.99 over the last 52-week period.

In the last quarter, Adobe reported cash of $5.54 and book value of $11.29 per share. Excluding cash, Adobe is trading for 8.6x next years earnings expectations, compared with 8.6x for Oracle (Nasdaq: ORCL), and 6.3x at Microsoft (Nasdaq: MSFT).

Data from Bloomberg shows 13 analysts have a Buy rating on Adobe, 11 are at Hold, and four maintain a Sell-equivalent call. The Street price target average is $31.50, with a low of $23 and high of $40. With shares currently at $26.50ish, analysts overall expectations average out to more upside for Adobe, at least for the next 12-months.

Analyst Comments

• Goldman Sachs sees earnings of 59 cents per share and revenue of $1.076 billion. Goldman is looking for a 4 percent increase to $421 million in Creative and Interactive revs, down from a prior outlook of a 9 percent gain from last year. Goldman comments: "NPD sales data for the quarter suggest Creative revenues declined 1% qoq and 12% yoy in the November quarter. That said, NPD sales data has been volatile and has displayed no consistent seasonal trends. We would also note the data does not account for direct sales by Adobe or international sales."
  
  Looking ahead, Goldman sees first-quarter 2012 top-line guidance of $1.01 to $1.06 billion. "Included in our estimate and expectations for guidance are about $40 mn in lost sales from exited businesses and a $10 mn qoq F/X headwind. As for FY2012, we would expect management to reiterate the guidance of topline growth of 4%-6% it originally offered at the November analyst day," Goldman said.
  
  
• Wells Fargo is looking for earnings of 60 cents per share in the quarter. The firm issued comments about Adobe's plan to reorganize its business model geared more toward the cloud: "These changes were made in order to alleviate the dependency of performance on product cycles and converting more of its revenue into a subscription model that lends to more visibility and less volatility. The new strategy transforms the company from a tools provider to a company that provides services and value through access to vast functionality as well. However meaningful revenue streams from these opportunities will likely not be realized in the near term with management guiding to growth for FY2012 of just 4-6% yr/yr versus consensus expectations of 9-10%."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Adobe's past performance at Streetinsider's Adobe's Income Statement.

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