Adobe Inc Valuation – February 2019 $ADBE

Company Profile (excerpt from Reuters): Adobe Inc., formerly Adobe Systems Incorporated, incorporated on May 9, 1997, is a software company. The Company offers a line of 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 across multiple operating systems, devices and media. The Company operates through three segments: Digital Media, Digital Experience and Publishing. The Company markets and licenses its products and services directly to enterprise customers through its sales force and to end users through application stores and its own Website at www.adobe.com. It offers various products through a software-as-a-service (SaaS) model or a managed services model (both of which are referred to as a hosted or cloud-based model), as well as through term subscription and pay-per-use models.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ADBE – February 2019

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 $122,633,826,630 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 Fail
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 241.00% Pass
6. Moderate PEmg Ratio PEmg < 20 49.88 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.28 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 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 7.42 Fail
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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.03
MG Growth Estimate 15.00%
MG Value $193.58
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $72.91
MG Value based on 0% Growth $42.74
Market Implied Growth Rate 20.69%
Current Price $250.82
% of Intrinsic Value 129.57%

Adobe Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, 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 growing its EPSmg (normalized earnings) from $1 in 2015 to an estimated $5.03 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 20.69% 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 Inc revealed the company was trading above its Graham Number of $57.72. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 49.88, which was below the industry average of 56.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.18.

Adobe Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.18
Graham Number $57.72
PEmg 49.88
Current Ratio 1.13
PB Ratio 13.28
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $4,857,039,000
Total Current Liabilities $4,301,126,000
Long-Term Debt $4,124,800,000
Total Assets $18,768,682,000
Intangible Assets $12,650,049,000
Total Liabilities $9,406,568,000
Shares Outstanding (Diluted Average) 495,611,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.72
Nov2018 $5.20
Nov2017 $3.38
Nov2016 $2.32
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.03
Nov2018 $3.30
Nov2017 $2.10
Nov2016 $1.40
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

Recommended Reading:

Other ModernGraham posts about the company

Adobe Systems Inc Valuation – April 2018 $ADBE
Adobe Systems Inc Valuation – February 2017 $ADBE
5 of the Worst Stocks to Invest In – December 2016
Adobe Systems Inc Valuation – August 2016 $ADBE
5 Speculative and Overvalued Companies to Avoid – June 2015

Other ModernGraham posts about related companies

Autodesk Inc Valuation – February 2019 $ADSK
F5 Networks Inc Valuation – February 2019 $FFIV
Cadence Design Systems Inc Valuation – January 2019 $CDNS
Oracle Corporation Valuation – January 2019 $ORCL
Red Hat Inc Valuation – January 2019 $RHT
Alphabet Inc Valuation – January 2019 $GOOG $GOOGL
Ansys Inc Valuation – January 2019 $ANSS
Citrix Systems Inc Valuation – January 2019 $CTXS
Microsoft Corporation Valuation – November 2018 $MSFT
Cisco Systems Inc Valuation – November 2018 $CSCO

Disclaimer:

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.

Adobe Systems Inc Valuation – April 2018 $ADBE

Company Profile (excerpt from Reuters): Adobe Systems Incorporated, incorporated on May 9, 1997, is a software company. The Company offers a line of 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 across multiple operating systems, devices and media. The Company operates through three segments: Digital Media, Digital Marketing, and Print and Publishing. The Company markets and licenses its products and services directly to enterprise customers through its sales force and to end users through application stores and its own Website at www.adobe.com. It offers various products through a software-as-a-service (SaaS) model or a managed services model (both of which are referred to as a hosted or cloud-based model), as well as through term subscription and pay-per-use models.

ADBE Chart

ADBE data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ADBE – April 2018

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 $105,284,567,394 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.12 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 210.13% Pass
6. Moderate PEmg Ratio PEmg < 20 59.96 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 12.65 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 2.12 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.48 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.65
MG Growth Estimate 15.00%
MG Value $140.37
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $52.87
MG Value based on 0% Growth $30.99
Market Implied Growth Rate 25.73%
Current Price $218.61
% of Intrinsic Value 155.74%

Adobe Systems Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.98 in 2014 to an estimated $3.65 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 25.73% 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 $49.09. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 59.96, which was above the industry average of 49.59. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.29.

Adobe Systems Incorporated receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.29
Graham Number $49.09
PEmg 59.96
Current Ratio 2.12
PB Ratio 12.65
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 2/1/2018
Total Current Assets $7,480,814,000
Total Current Liabilities $3,536,469,000
Long-Term Debt $1,874,794,000
Total Assets $14,973,485,000
Intangible Assets $6,197,639,000
Total Liabilities $6,339,457,000
Shares Outstanding (Diluted Average) 499,433,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.24
Nov2017 $3.38
Nov2016 $2.32
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.65
Nov2017 $2.10
Nov2016 $1.40
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

Recommended Reading:

Other ModernGraham posts about the company

Adobe Systems Inc Valuation – February 2017 $ADBE
5 of the Worst Stocks to Invest In – December 2016
Adobe Systems Inc Valuation – August 2016 $ADBE
5 Speculative and Overvalued Companies to Avoid – June 2015
Adobe Systems Inc. Analysis – 2015 Update $ADBE

Other ModernGraham posts about related companies

F5 Networks Inc Valuation – April 2018 $FFIV
Cadence Design Systems Inc Valuation – Initial Coverage $CDNS
Oracle Corporation Valuation – March 2018 $ORCL
CA Inc Valuation – March 2018 $CA
Red Hat Inc Valuation – March 2018 $RHT
Alphabet Inc Valuation – March 2018 $GOOGL
Ansys Inc Valuation – March 2018 $ANSS
Citrix Systems Inc Valuation – February 2018 $CTXS
Microsoft Corp Valuation – February 2018 $MSFT
Cisco Systems Inc Valuation – February 2018 $CSCO

Disclaimer:

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.

Adobe Systems Inc Valuation – February 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  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

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of ADBE – February 2017

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 $58,959,918,275 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.08 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 64.38% Pass
6. Moderate PEmg Ratio PEmg < 20 64.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.11 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 2.08 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.63 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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.86
MG Growth Estimate 8.23%
MG Value $46.55
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $27.04
MG Value based on 0% Growth $15.85
Market Implied Growth Rate 27.76%
Current Price $119.37
% of Intrinsic Value 256.46%

Adobe Systems Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.2 in 2013 to an estimated $1.86 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 27.76% 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 $30.03. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 64.02, which was above the industry average of 38.63. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.11.

Adobe Systems Incorporated receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.11
Graham Number $30.03
PEmg 64.02
Current Ratio 2.08
PB Ratio 8.11
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2016
Total Current Assets $5,839,774,000
Total Current Liabilities $2,811,635,000
Long-Term Debt $1,902,068,000
Total Assets $12,707,114,000
Intangible Assets $5,820,879,000
Total Liabilities $5,282,279,000
Shares Outstanding (Diluted Average) 504,299,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.67
Nov2016 $2.32
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.86
Nov2016 $1.40
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

Recommended Reading:

Other ModernGraham posts about the company

Adobe Systems Inc Valuation – August 2016 $ADBE
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

Other ModernGraham posts about related companies

Synopsys Inc Valuation – Initial Coverage $SNPS
Microsoft Corporation Valuation – February 2017 $MSFT
Cisco Systems Inc Valuation – January 2017 $CSCO
Autodesk Inc Valuation – December 2016 $ADSK
Symantec Corporation Valuation – August 2016 $SYMC
Adobe Systems Inc Valuation – August 2016 $ADBE
Microsoft Corporation Valuation – August 2016 $MSFT
Cisco Systems Inc Valuation – August 2016 $CSCO
Oracle Corporation Valuation – July 2016 $ORCL
CA Inc Valuation – July 2016 $CA

Disclaimer:

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.

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

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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.

[/level-free]
[not-level-free]

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

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

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

Other ModernGraham posts about related companies

Microsoft Corporation Valuation – August 2016 $MSFT
Cisco Systems Inc Valuation – August 2016 $CSCO
Oracle Corporation Valuation – July 2016 $ORCL
CA Inc Valuation – July 2016 $CA
Red Hat Inc Valuation – June 2016 $RHT
Yahoo! Inc Valuation – June 2016 $YHOO
Alphabet Inc Valuation – June 2016 $GOOGL
Ansys Inc Valuation – June 2016 $ANSS
Citrix Systems Inc Valuation – May 2016 $CTXS
Symantec Corp Valuation – February 2016 $SYMC

Disclaimer:

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.

Adobe Systems Inc. Analysis – 2015 Update $ADBE

Adobe_Systems_logo_and_wordmark.svgBenjamin 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 5 Most Undervalued Companies for the Defensive Investor – June 2015.  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 (Adobe) is a software company. The Company offers products and services for professionals, marketers, application developers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with content. Adobe markets and licenses its products and services through app stores and its Website www.adobe.com. The Company’s operates in three segments: Digital Marketing, Digital Media, and Print and Publishing. In Digital Media, the Company is engaged in providing tools, services and solutions that enable to create, publish and promote their content. In Digital Marketing, the Company is engaged in providing solutions and services for creating, managing, executing, measuring and optimizing digital advertising and marketing campaigns. Adobe’s Print and Publishing segment addresses various market opportunities, including eLearning solutions, technical document publishing, Web application development and high-end printing.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $78.96
MG Value $6.69
MG Opinion Overvalued
Value Based on 3% Growth $17.95
Value Based on 0% Growth $10.52
Market Implied Growth Rate 27.64%
Net Current Asset Value (NCAV) -$0.88
PEmg 63.78
Current Ratio 2.22
PB Ratio 6.08

Balance Sheet – March 2015

Current Assets $3,972,000,000
Current Liabilities $1,788,000,000
Total Debt $1,902,000,000
Total Assets $11,008,000,000
Intangible Assets $6,025,000,000
Total Liabilities $4,419,000,000
Outstanding Shares 507,500,000

Earnings Per Share

2015 (estimate) $1.96
2014 $0.53
2013 $0.56
2012 $1.66
2011 $1.65
2010 $1.47
2009 $0.73
2008 $1.59
2007 $1.21
2006 $0.83
2005 $1.19

Earnings Per Share – ModernGraham

2015 (estimate) $1.24
2014 $0.98
2013 $1.20
2012 $1.49
2011 $1.38
2010 $1.22

Dividend History
Adobe does not pay a dividend.

Conclusion:

Adobe Systems Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, the lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the lack of earnings growth over the last five years and the lack of dividends.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.38 in 2011 to only an estimated $1.24 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 27.64% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value well below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Adobe Systems Inc. (ADBE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

 

Adobe Systems Inc. Annual Valuation – 2014 $ADBE

Adobe_Systems_logo_and_wordmark.svgBenjamin 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 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows.  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 specific look at how Adobe Systems Inc. (ADBE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Adobe Systems Incorporated (Adobe) is a diversified software company. The Company offers a line of software and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring and engaging with content and experiences across multiple operating systems, devices and media. The Company markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its Website at www.adobe.com. Adobe also distributes its products through a network of distributors, value-added resellers (VARs), systems integrators, independent software vendors (ISVs), retailers and original equipment manufacturers (OEMs). In May 2013, it acquired Ideacodes LLC. In July 2013, the Company announced the completion of acquisition of privately held Neolane.

ADBE Chart

ADBE data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $66.56
MG Value $2.81
MG Opinion Overvalued
Value Based on 3% Growth $14.35
Value Based on 0% Growth $8.41
Market Implied Growth Rate 29.39%
Net Current Asset Value (NCAV) $0.62
PEmg 67.28
Current Ratio 1.87
PB Ratio 5.02

Balance Sheet – 2/28/2014

Current Assets $3,942,400,000
Current Liabilities $2,112,300,000
Total Debt $896,400,000
Total Assets $10,245,900,000
Intangible Assets $5,352,600,000
Total Liabilities $3,635,000,000
Outstanding Shares 498,500,000

Earnings Per Share

2014 (estimate) $0.57
2013 $0.56
2012 $1.66
2011 $1.65
2010 $1.47
2009 $0.73
2008 $1.59
2007 $1.21
2006 $0.83
2005 $1.19
2004 $0.91

Earnings Per Share – ModernGraham

2014 (estimate) $0.99
2013 $1.20
2012 $1.49
2011 $1.38
2010 $1.22
2009 $1.10

Conclusion:

Adobe Systems Inc. is no longer suitable for either the Defensive Investor or the Enterprising Investor at this time.  The Defensive Investor has concerns with the low current ratio, lack of dividend payments, lack of sufficient earnings growth over the last ten years and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the lack of dividend payments and lack of growth in earnings over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities through a review of ModernGraham’s valuation of Microsoft Corp (MSFT) and ModernGraham’s valuation of Apple Inc. (AAPL).  As for a valuation, the company appears significantly overvalued after seeing its EPSmg (normalized earnings) fall from $1.22 in 2010 to only an estimated $0.99 for 2014.  This demonstrated drop in earnings clearly does not support the market’s implied estimate of 29.39% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Adobe Systems Inc. (ADBE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of Adobe Systems Inc. (ADBE)!

Disclaimer:  The author held a long position in Apple Inc. (AAPL) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

Adobe Systems Incorporated (ADBE) Quarterly Valuation – March 2014

Adobe_Systems_logo_and_wordmark.svgBenjamin 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.  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 specific look at how Adobe Systems fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Adobe Systems Incorporated (Adobe) is a diversified software company. The Company offers a line of software and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring and engaging with content and experiences across multiple operating systems, devices and media. The Company markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its Website at www.adobe.com. Adobe also distributes its products through a network of distributors, value-added resellers (VARs), systems integrators, independent software vendors (ISVs), retailers and original equipment manufacturers (OEMs). In May 2013, it acquired Ideacodes LLC. In July 2013, the Company announced the completion of acquisition of privately held Neolane.

ADBE Chart

ADBE data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $68.06
MG Value $13.67
MG Opinion Overvalued
Value Based on 3% Growth $17.46
Value Based on 0% Growth $10.23
Market Implied Growth Rate 24.01%
Net Current Asset Value (NCAV) $0.79
PEmg 56.53
Current Ratio 2.65
PB Ratio 5.02

Balance Sheet – 11/29/2013

Current Assets $4,045,900,000
Current Liabilities $1,525,600,000
Total Debt $1,499,300,000
Total Assets $10,380,300,000
Intangible Assets $5,377,200,000
Total Liabilities $3,655,700,000
Outstanding Shares 496,260,000

Earnings Per Share

2013 $0.56
2012 $1.66
2011 $1.65
2010 $1.47
2009 $0.73
2008 $1.59
2007 $1.21
2006 $0.83
2005 $1.19
2004 $0.91
2003 $0.55

Earnings Per Share – ModernGraham 

2013 $1.20
2012 $1.49
2011 $1.38
2010 $1.22
2009 $1.10
2008 $1.24

Conclusion:

Adobe Systems is not suitable for the Defensive Investor, due to the lack of a dividend payment, insufficient earnings growth over the ten year period, and high PEmg and PB ratios.  The Enterprising Investor is not quite as picky, though, and the company passes all of the requirements for the investor type other than the dividend payment.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of ModernGraham’s valuation of Microsoft Corp (MSFT) and a review of 5 Undervalued Companies for the Enterprising Investor.  From a valuation standpoint, the company does not appear to be a good value at this time.  The company’s EPSmg (normalized earnings) have only grown from $1.10 in 2009 to $1.20 for 2013, a very low level of growth that does not support the market’s implied estimate of 24.01% earnings growth.  Accordingly, the ModernGraham valuation model returns an estimate of intrinsic value that falls well below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Adobe Systems Inc. (ADBE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Adobe Systems Inc. (ADBE) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

ModernGraham Valuation: Adobe Systems Inc (ADBE)

moneyCompany Profile (obtained from Google Finance): Adobe Systems Incorporated (Adobe) is a diversified software company. The Company offers a line of software and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring and engaging with content and experiences across multiple operating systems, devices and media. The Company markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its Website at www.adobe.com. Adobe also distributes its products through a network of distributors, value-added resellers (VARs), systems integrators, independent software vendors (ISVs), retailers and original equipment manufacturers (OEMs). In May 2013, Adobe Systems Inc acquired Ideacodes LLC. In July 2013, Adobe Systems Inc announced the completion of acquisition of privately held Neolane.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $14.57
MG Opinion Overvalued
Value Based on 3% Growth $17.75
Value Based on 0% Growth $10.40
Market Implied Growth Rate 18.35%
Net Current Asset Value (NCAV) $0.97
PEmg 45.20
Current Ratio 2.92
PB Ratio 4.06

Balance Sheet – 8/30/2013 

Current Assets $3,886,100,000
Current Liabilities $1,329,100,000
Total Debt $1,502,400,000
Total Assets $10,234,200,000
Intangible Assets $5,390,300,000
Total Liabilities $3,399,400,000
Outstanding Shares 501,810,000

Earnings Per Share

2013 (estimate) $0.62
2012 $1.66
2011 $1.65
2010 $1.47
2009 $0.73
2008 $1.59
2007 $1.21
2006 $0.83
2005 $1.19
2004 $0.91
2003 $0.55
2002 $0.39

Earnings Per Share – Modern Graham 

2013 (estimate) $1.22
2012 $1.49
2011 $1.38
2010 $1.22
2009 $1.10
2008 $1.24

Conclusion:

Adobe Systems Inc. disappoints the Enterprising Investor by having lackluster growth.  The company does not qualify for the Defensive Investor by not having a strong dividend history, and trading at very high PEmg and PB ratios.  The company does pass the requirements for the Enterprising Investor, but the company disappoints from a valuation perspective.  Adobe’s EPSmg (normalized earnings) have failed to substantially grow during the recent historical period, and in fact have dropped from $1.24 in 2008 to an estimated $1.22 for 2013.  Compared to similar companies such as Microsoft (MSFT), International Business Machines (IBM), and especially Apple (AAPL), it is surprising Adobe has not been able to achieve at least some growth.  This failure to grow earnings negatively affects the ModernGraham valuation model’s results for Adobe, and the company appears to be overvalued at the current time.  The market’s implied growth rate of 18.35% is in no way supported by the historical data, and Enterprising Investors should be very careful when considering this company for their individual portfolios.

What do you think?  Do you agree that Adobe Systems Inc. is overvalued?  Is the company suitable only for Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Adobe Systems Inc. at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

Valuation-Adobe Systems Inc. (ADBE)

Company Review: Adobe Systems Inc. (ADBE)

Company Profile: Adobe Systems Inc. (obtained via Google Finance)

Adobe Systems Incorporated, incorporated in October 1983, is a diversified software company that offers a line of creative, business and mobile, software and services used by creative professionals, designers, knowledge workers, high-end consumers, original equipment manufacturers (OEM), developers and enterprises for creating, managing, delivering and engaging with content and experiences across multiple operating systems, devices and media. The Company distributes its products through a network of distributors and dealers, value-added resellers, systems integrators, independent software vendors and OEMs, direct to end users, and through its own Website at www.adobe.com. The Company has operations in the Americas; Europe, Middle East and Africa (EMEA); and Asia. During the fiscal year ended December 1, 2006 (fiscal 2006), the Company categorized its products and services into the five segments: Creative Solutions, Knowledge Worker Solutions, Enterprise and Developer Solutions, Mobile and Device Solutions, and Other. On December 3, 2005, the Company completed the acquisition of Macromedia, Inc., a provider of software technologies that enable the development of a range of Internet and mobile application solutions. On April 21, 2006, the Company acquired Trade and Technologies France. In October 2006, the Company acquired Serious Magic Inc., a maker of video software and communications tools for professional, business, consumer and education markets.

Business and Management Review

1) Is the business simple and understandable?
This is an IT business that is easy and simple to understand. The company creates its own software by increasing spending in Research and Development for their five different sectors. The Cost of Goods Sold (COGS) of this company had gone up by 50% since 2005 much in part by the marketing campaign put in place by Adobe. In 2005, the SG&A expenses reached its highest because the company was creating a brand name for itself to take advantage of the introduction of new software in 2006. These actions drove R&D expenses to 32% from the previous year. All these expenditures and business strategies have increased Adobe Net Income 26% so far this year.

2) Does the business have a consistent operating history?
Adobe has a rich history due to the redefinition of business, personal, and entertainment communication by setting new standards for producing and delivering content that engages people anywhere at anytime. Adobe has kept it sales constantly growing over the past as the company begins to differentiate from its competitors.

3) Does the business have favorable long-term prospects?
As Adobe remains actively researching and developing new software, they may have the potential to overcome rivalry pressure from their main competitors (Microsoft, Oracle and Apple) in their business sector. Adobe’s net income is expected to increase this year and the upcoming years due to the great brand recognition campaign that the company put in place in 2005.

4) Is management rationale?
As we look at the financials we can conclude that management is acting rationally. Adobe has a higher EPS and sales growth than the rest of the industry. The margins that the company has been operating under for the past five years on average are outpacing the industry. Its quick and current ratio are higher than the industry meaning that they are effective on the way they handle short term operations. They seem to be holding a lot of cash and not much debt which gives investors a good sense of solvency. On the other hand, much of the company’s cash is reinvested into their research and development that may give Adobe an edge against their industry rivals.

5) Is management candid with its shareholders?
By presenting the relevant information required by investors, Adobe’s investor relations are strong.

6) Does management resist the institutional imperative?
We have no reason to doubt that management has resisted the institutional imperative. 

 
Financial and Value Review

Defensive
1) Size of firm

The company passes the requirement of $2 billion. “Pass”.

2) Strong financial condition
With a current ratio of 3.10 Adobe passes the test.  “Pass”.

3) Earnings stability
With positive net income over the past ten years, this company passes this test. “Pass”.

4) Dividend record
The company has failed to pay dividends for the past ten years, so this test fails. “Fail”.

5) Earnings growth
There has been an increase in EPS of one third over the past ten years. “Pass”.

6) Price to earnings analysis
With a P/E above 40 Adobe is above the required 20, so this test fails. “Fail”.

7) Price to book analysis
The company has a P/B of 5.56 which is higher than the 2.5 requirement. The multiplication of P/B and PE ratio is higher than 50, therefore both price to book analysis’ tests “Fail”.

Conclusion
Scoring only 4/8, we would not recommend Adobe to be placed in the defensive investor’s portfolio.

Enterprising
1) Strong financial condition

Current ratio is higher than 1.5 and debt to Net Current Asset (NCA) is lower than 1.1. Both tests “Pass”.

2) Earnings stability
The company has positive net income for the past five years. “Pass”.

3) Dividend Record
Currently pays no dividends. “Fail”.

4) Earnings growth
Earnings are greater than five years ago. “Pass”.

5) Price
The stock price is higher than 150% of net tangible assets. “Fail”

Conclusion:
We find the company not to be suitable for the enterprising investor, having passed 4 out of 6 tests.

Valuation:
We find that Adobe Systems Incorporated’s fair market value is $46.

Opinion:
Since the company is currently trading at $46.27, the company seems fairly valued but may not be a suitable investment for a long term enterprising or defensive investor.

None of the staff of ModerGraham held a position in Adobe. at the time of publication.  Also, please read our disclaimer and our methods.

(Analyzed and written by Andres Romero)

Cisco Systems Inc Valuation – April 2019 #CSCO

Company Profile (excerpt from Reuters): Cisco Systems, Inc. (Cisco), incorporated on December 10, 1984, is engaged in designing and selling a range of technologies across networking, security, collaboration, applications and the cloud. The Company operates through three geographic segments: Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).The Company’s product and technologies includes, infrastructure platforms; applications; security and other products. It also offers technical support services and advanced services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CSCO – April 2019

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 $243,035,961,849 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.80 Fail
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 21.55% Fail
6. Moderate PEmg Ratio PEmg < 20 31.37 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.10 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 1.80 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 Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.76
MG Growth Estimate 1.20%
MG Value $19.19
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $25.52
MG Value based on 0% Growth $14.96
Market Implied Growth Rate 11.43%
Current Price $55.21
% of Intrinsic Value 287.64%

Cisco Systems, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.63 in 2015 to an estimated $1.76 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.43% 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 Cisco Systems, Inc. revealed the company was trading above its Graham Number of $24.85. The company pays a dividend of $1.24 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.37, which was below the industry average of 69.29, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.9.

Cisco Systems, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$1.90
Graham Number $24.85
PEmg 31.37
Current Ratio 1.80
PB Ratio 6.10
Current Dividend $1.24
Dividend Yield 2.25%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2019
Total Current Assets $53,117,000,000
Total Current Liabilities $29,479,000,000
Long-Term Debt $15,893,000,000
Total Assets $102,462,000,000
Intangible Assets $35,563,000,000
Total Liabilities $61,673,000,000
Shares Outstanding (Diluted Average) 4,505,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.93
Jul2018 $0.02
Jul2017 $1.90
Jul2016 $2.11
Jul2015 $1.75
Jul2014 $1.49
Jul2013 $1.86
Jul2012 $1.49
Jul2011 $1.17
Jul2010 $1.33
Jul2009 $1.05
Jul2008 $1.31
Jul2007 $1.17
Jul2006 $0.89
Jul2005 $0.87
Jul2004 $0.62
Jul2003 $0.50
Jul2002 $0.25
Jul2001 -$0.14
Jul2000 $0.36
Jul1999 $0.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.76
Jul2018 $1.27
Jul2017 $1.87
Jul2016 $1.82
Jul2015 $1.63
Jul2014 $1.54
Jul2013 $1.50
Jul2012 $1.30
Jul2011 $1.21
Jul2010 $1.20
Jul2009 $1.11
Jul2008 $1.08
Jul2007 $0.92
Jul2006 $0.74
Jul2005 $0.58
Jul2004 $0.40
Jul2003 $0.27

Recommended Reading:

Other ModernGraham posts about the company

Cisco Systems Inc Valuation – November 2018 $CSCO
Cisco Systems Inc Valuation – February 2018 $CSCO
5 Undervalued Dow Components to Research – March 2017
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2017
5 Undervalued Dow Components to Research – February 2017

Other ModernGraham posts about related companies

Salesforce.com Inc Valuation – March 2019 #CRM
Akamai Technologies Inc Valuation – February 2019 $AKAM
Accenture PLC Valuation – February 2019 $ACN
Fortinet Inc Valuation – February 2019 $FTNT
Synopsys Inc Valuation – February 2019 $SNPS
Symantec Corp Valuation – February 2019 $SYMC
Intuit Inc Valuation – February 2019 $INTU
Adobe Inc Valuation – February 2019 $ADBE
Autodesk Inc Valuation – February 2019 $ADSK
F5 Networks Inc Valuation – February 2019 $FFIV

Disclaimer:

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.

Back To Top