Will Adobe Systems (ADBE) Surprise this Earnings Season?

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Adobe Systems Inc. ADBE is set to report third-quarter 2014 results on Sep 16. Last quarter, the company posted 43.8% positive surprise. Let's see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Adobe's second-quarter earnings of 23 cents beat the Zacks Consensus Estimate by 7 cents due to efficient cost management. Revenues were up sequentially and at the higher end of management's guidance range due to higher subscription sales of creative cloud and Adobe Marketing Cloud suites.

However, margins were affected in the last quarter due to the change in sales mix, which favored lower-margin products.

For the third quarter, management expects revenues in the range of $975 million to $1.025 billion. Based on a share count of 506–508 million, GAAP earnings are expected in the range of 2–8 cents per share, while non-GAAP earnings are expected in the range of 22–28 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 13 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 Rank #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:

Micron Technology Inc. MU, with an Earnings ESP of +3.70% and a Zacks Rank #1 (Strong Buy).

BlackBerry Limited BBRY, with an Earnings ESP of +52.94% and a Zacks Rank #2(Buy).

FedEx Corporation FDX, with an Earnings ESP of +0.51% and a Zacks Rank #2.

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