By Peet Serfontein & Zimele Mbanjwa
We initiate a long position with a target price of $566 and a stop-loss of $463.
Diversified software company, Adobe Inc., develops, markets, and provides support for computer software products and technologies. The company offers a line of application software products, type products, and content for creating, distributing, and managing information - including popular platforms such as Photoshop, Acrobat Reader, and Adobe Creative Cloud.
The group has a global footprint, with the Americas being Adobe's largest market, representing about 60% of revenue. The EMEA (Europe, Middle East, and Africa) region generates around 25% of revenue, and the Asia-Pacific (APAC) region contributes some 15%.
Adobe's growth over the last few years can be attributed to its successful transition from a traditional software selling model to a subscription-based model. This shift has led to more stable recurring revenues, making Adobe a popular choice among investors looking for steady growth in the technology sector.
Technically, the stock is trading in the lower range of an upsloping inclining channel pattern, which makes it a strong candidate for a long investment position (see the black parallel trendlines). In an upward-sloping channel, the lower boundary acts as a support level. When the price hits this lower boundary and does not break through it, it indicates that there is buying interest at these levels. The continuation of the price remaining within the channel lines suggests that the overall bullish sentiment on the stock remains intact.
The stock is trading below its 200-day simple moving average (SMA) of ~$551.14, but recently crossed above its 200-week SMA. This might indicate that the stock was overly punished in the short term (in this case in response to results) relative to its long-term trends.
Fading downside momentum, according to the MACD indicator as well as sidewards movement of the on-balance volume indicator, is supportive of our bullish view.
This stock can also be accessed by JSE traders via the FNB ETNs (ADETNC; ADETNQ).
Share Information
| Share Code | ADBE |
|---|---|
| Industry | Software & Services |
| Market Capital (USD) | 220.54 billion |
| One Year Total Return | 43.08% |
| Return Year-to-Date | -17.49% |
| Current Price (USD) | 492.27 |
| 52 Week High (USD) | 638.25 |
| 52 Week Low (USD) | 331.89 |
| Financial Year End | December |
| The stock made strong gains over the last 12 months but has been under some pressure so far this year. Various technical indicators suggest that a rebound could be imminent. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (USD) | 16.07 | 18.02 | 20.33 | 23.14 |
| Growth (%) | 12.12 | 12.86 | 13.81 | |
| Dividend Per Share (USD) | ||||
| Growth (%) | ||||
| Forward PE (times) | 27.32 | 24.21 | 21.27 | |
| Forward Dividend Yield (%) | ||||
| Earnings are forecast to maintain a consistent low teens growth over the medium term. | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | KHC - Stop Loss (Close the Position) | MS - Buy (Continue to hold) | PNW - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 37.16 | 89.14 | 73.02 |
| Current | 35.74 | 95.79 | 76.41 |
| Movement | -3.8% | 7.5% | 4.6% |
| The stock has reached our stop-loss level and we exited the trade. |
The development of a falling wedge pattern in an uptrend is encouraging. The stock is above the 200-day simple moving average. Upside price momentum is supportive.
Our profit target is $101, with a stop-loss of $84. Exit the position around 14 August 2024. |
A developing symmetrical triangle remains of interest. The stock is testing its 200-day moving average, and we maintain our counter trend strategy. Upside momentum is supportive.
Our profit target is $81, with a trailing stop-loss of $73.30. Exit the trade by 5 July 2024. |
| Share Name and position | VWO - Buy (Continue to hold) | PEP - Buy (Continue to hold) | FRS - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 41.57 | 171.44 | 799.5 |
| Current | 43.24 | 178.02 | 816 |
| Movement | 4.0% | 3.8% | 2.1% |
|
A developing symmetrical triangle remains of interest. The ETF is above the 200-day simple moving average. Upside momentum has regained strength which is encouraging.
Our profit target is $48, with a trailing stop-loss of $42.20. Exit the position around 14 June 2024. |
Price action above key support remains of interest. The stock crossed above its 200-day moving average, which is encouraging. Upside momentum is supportive.
Our profit target is $190, with a trailing stop-loss of $172.80. Exit the trade by 26 June 2024. |
A developing symmetrical triangle in an uptrend remains of interest. The stock is testing its 200-day moving average, and we maintain our counter trend strategy. Fading downside momentum is supportive.
Our profit target is £897, with a trailing stop-loss of £777. Exit the trade by 21 June 2024. |
