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Why Adobe Systems (ADBE) Stock Is Gaining After-Hours Tuesday

Stocks in this article: ADBE

NEW YORK (TheStreet) -- Adobe Systems (ADBE) was gaining 5.9% to $71.51 after-hours Tuesday after beating analysts' expectations for earnings and revenue in the second quarter.

For the second quarter Adobe reported earnings of 37 cents a share, beating analysts' expectations of 30 cents a share by 7 cents. Revenue grew 5.9% from the year-ago quarter to $1.07 billion, beating the company's guidance of $1 billion to $1.05 billion. Analysts surveyed by Thomson Reuters expected revenue of $1.03 billion for the quarter.

Revenue from Adobe Marketing Cloud grew 23% from the year-ago quarter to $283 million. Cloud services Creative Cloud and Marketing Cloud accounted for 53% of revenue in the quarter.

"Our earnings performance in Q2 reflects the financial leverage we have in our model," executive vice president and CFO Mark Garrett said in a press release. "With Adobe's Creative Cloud transformation behind us, our focus moving forward is to drive strong revenue and earnings growth with our market-leading cloud offerings."

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TheStreet Ratings team rates ADOBE SYSTEMS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ADOBE SYSTEMS INC (ADBE) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ADBE's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, ADBE has a quick ratio of 1.72, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for ADOBE SYSTEMS INC is currently very high, coming in at 91.56%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ADBE's net profit margin of 4.70% significantly trails the industry average.
  • ADBE, with its decline in revenue, slightly underperformed the industry average of 7.5%. Since the same quarter one year prior, revenues slightly dropped by 0.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, ADOBE SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $251.67 million or 21.84% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: ADBE Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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