Adobe Systems Inc Valuation – August 2016 $ADBE

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Adobe Systems Inc (ADBE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Adobe Systems Incorporated is a software company. The Company offers products and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences. It operates through three segments: Digital Media, Digital Marketing, and Print and Publishing. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content. Its Digital Marketing segment provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized. Its Print and Publishing segment addresses market opportunities ranging from the diverse authoring and publishing needs of technical and business publishing to its legacy type and original equipment manufacturer (OEM) printing businesses.

ADBE Chart

ADBE data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ADBE – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $49,814,744,355 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.20 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 17.85% Fail
6. Moderate PEmg Ratio PEmg < 20 70.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.99 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.20 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.67 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

ADBE value chart August 2016

EPSmg $1.42
MG Growth Estimate -0.72%
MG Value $10.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $20.57
MG Value based on 0% Growth $12.06
Market Implied Growth Rate 31.11%
Current Price $100.32
% of Intrinsic Value 1002.90%

Adobe Systems Incorporated does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.49 in 2012 to an estimated $1.42 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 31.11% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Adobe Systems Incorporated revealed the company was trading above its Graham Number of $27.95. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 70.71, which was above the industry average of 36.31. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.54.

Adobe Systems Incorporated scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

ADBE charts August 2016

Net Current Asset Value (NCAV) $0.54
Graham Number $27.95
PEmg 70.71
Current Ratio 2.20
PB Ratio 6.99
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 5/1/2016
Total Current Assets $5,238,564,000
Total Current Liabilities $2,385,590,000
Long-Term Debt $1,918,389,000
Total Assets $12,216,783,000
Intangible Assets $5,938,749,000
Total Liabilities $4,968,172,000
Shares Outstanding (Diluted Average) 504,725,000

Earnings Per Share History

Next Fiscal Year Estimate $2.39
Nov2015 $1.24
Nov2014 $0.53
Nov2013 $0.56
Nov2012 $1.66
Nov2011 $1.65
Nov2010 $1.47
Nov2009 $0.73
Nov2008 $1.59
Nov2007 $1.21
Nov2006 $0.83
Nov2005 $1.19
Nov2004 $0.91
Nov2003 $0.55
Nov2002 $0.40
Nov2001 $0.42
Nov2000 $0.57
Nov1999 $0.46
Nov1998 $0.19
Nov1997 $0.32
Nov1996 $0.25

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.42
Nov2015 $1.00
Nov2014 $0.98
Nov2013 $1.20
Nov2012 $1.49
Nov2011 $1.38
Nov2010 $1.22
Nov2009 $1.10
Nov2008 $1.24
Nov2007 $1.02
Nov2006 $0.88
Nov2005 $0.83
Nov2004 $0.62
Nov2003 $0.48
Nov2002 $0.43
Nov2001 $0.43
Nov2000 $0.41

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – June 2015
Adobe Systems Inc. Analysis – 2015 Update $ADBE
5 Speculative and Overvalued Companies to Avoid – October 2014
21 Companies in the Spotlight This Week – June 14, 2014
Adobe Systems Inc. Annual Valuation – 2014 $ADBE

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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