Will Adobe (ADBE) Disappoint This Earnings Season? - Analyst Blog

Adobe Systems Inc. ADBE is set to report first-quarter 2014 results on Mar 18. Last quarter, it posted 5.3% negative surprise. Let's see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Adobe's fourth-quarter earnings of 18 cents exceeded the Zacks Consensus Estimate by a penny due to solid cost management and higher revenues. Revenues were up sequentially and at the higher end of management's guidance range due to the accelerated adoption of creative cloud subscription pricing model.

Margin expansion was limited due to the change in sales mix, which favored lower-margin products.

For the second quarter, management expects revenues in the range of $950 million to $1.0 billion, down 6.7% sequentially at the mid-point. Adobe expects non-GAAP earnings per share in the range of 22–28 cents, well above the Zacks Consensus Estimate of 12 cents.

Earnings Whispers?

Our proven model does not conclusively show that Adobe will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 12 cents. Hence, the difference is 0.00%.

Zacks Rank: Adobe's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive earnings ESP and a Zacks Rank #1, 2 or 3 such as:

Emerge Energy Services LP EMES, with Earnings ESP of +8.96% and a Zacks Rank #1.

Ring Energy, Inc. (REI), with Earnings ESP of +50.00% and a Zacks Rank #2 (Buy).

Chesapeake Granite Wash Trust CHKR, with Earnings ESP of +6.45% and a Zacks Rank #2.