Shares of design software heavyweight Adobe (NASDAQ:ADBE) have dropped significantly in recent months, due largely to a 2022 revenue forecast that fell short of Street expectations. With a 30% retreat since late November, does the discounted price make the stock a buy?
Adobe Tempers Expectations for 2022
ADBE has suffered a notble decline along with the rest of the market in the past two and a half months. Since the end of November, Adobe shares have tumbled nearly 30%, compared with the S&P 500 index, which has risen approximately 2%. Year-to-date, Adobe is down 8%, while the S&P index has slid 4%.
The stock is also trading at the lower end of its 52-week range, closing at $495.02 on Thursday. Shares hit a high of $699.54 on Nov. 22 and a low of $420.78 on March 8 of last year.
While overall market weakness has contributed to the decline, ADBE's slide also stems from 2022 guidance it released in conjunction with its Q4 earnings report on Dec. 16. The forecast fell significantly below analyst estimates, Adobe saying that it was expecting revenue of $17.9B for 2022. Analysts had forecasted a figure closer to $18.2B. The company’s Q1 2022 revenue outlook of $4.23B also fell short, with analysts expecting $4.36B.
Adobe’s outlook was quickly followed by a flurry of price target reductions. Jefferies lowered its target to $680 from $760, Credit Suisse dropped its target to $625 from $700, Deutsche Bank to $715 from $770, and BofA Securities to $640 from $720.
Lingering concerns about growth also prompted UBS to downgrade Adobe to Neutral from Buy in early January and cut its price target to $575 from $635.
UBS said it downgraded the stock after speaking with over a dozen large enterprise IT executives and Adobe service partners about their spending plans for the company’s products in 2022. Most of the executives said their organizations had pulled forward spending on Adobe products into 2021 due in part to more employees working at home during the pandemic.
The prospect of these potential headwinds drove the massive decline suffered over the last few months. However, has the stock fallen enough to become a buying opportunity?
Is ADBE a Buy?
Despite the price target reductions, Wall Street analysts, on average, still have a Buy rating on the stock. Of the 31 analysts tracked by SA over the past 90 days, 17 rated Adobe a Strong Buy, 8 a Buy, and 6 a Hold. None rated the stock a Sell. SA authors also saw the stock as a buy, on average.
Seeking Alpha's Quant Ratings, however, view the stock as a hold. While the company earned an A+ for profitability, it received a C+ for momentum, a D+ for growth and a D- for valuation.
In comparison, several of Adobe’s competitors, lie Salesforce.com, Intuit, SAP, Atlassian, and Dassault Systemes, also have a Quant Rating of hold.
For a bullish view on Adobe, read SA contributor Geoff Considine’s “Adobe Looks Attractive After Share Price Decline.” For a bearish view, see SA contributor Mott Capital Management’s “Shares of Adobe May Have Significant Downside Risk.”