Adobe: A Breakout Buy

04/24/2017 2:45 am EST

Focus: STOCKS

Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Adobe Systems (ADBE), based in San Jose, Ca., provides imaging software for the web and print, notes breakout stock specialist Leo Fasciocco, editor of Ticker Tape Digest.

ADBE's stock broke out on Thursday from a six-week flat base. The move carries the stock to a new all-time high. That is bullish. ADBE is a leader.

The stock's tape action shows the recent block trades, with prices for the blocks advancing from  $120.39 in the prior session to as high as $131.95 in the afternoon.

ADBE's stock rose steadily in the morning and cleared its breakpoint line. The stock reached an all-time high of $131.99 in the early afternoon.

chart 1

ADBE's 12-month performance chart shows the stock appreciating 35% versus a 12% gain for the S&P 500 index.

There was heavy insider selling in early 2017 at $113 to $130.  (see red bars on performance chart).

ADBE then trended in a trading range until 2013. It broke out and has since trended steadily higher.

chart 2

The stock came public back in 1986. It has gone through six 2-for-1 stock splits. ADBE's daily chart shows the stock climbing from  near $100 in January  to a peak near $130.

The stock pulled back slightly and then formed its flat base well above its rising 50-day moving average line. The breakout clears resistance. The momentum indicator is strongly bullish.

Analysts expect net for the fiscal year ending in November 2017 to jump 28% to $3.21 a share from $2.51 a year ago. Analysts have been raising their 2017 estimates.

The stock has a price-earnings ratio of 34. That is high but okay given the earnings growth rate this year and next and the historical price pattern.  

Looking ahead to fiscal 2018 ending in November, the Street is forecasting a 27% jump in profits to $4.09 a share from  the anticipated $3.21 this fiscal year.

Earnings for the upcoming fiscal second  quarter ending in May should surge 39% to 77 cents a share from 55 cents the year before. ADBE has topped the consensus estimate the past eight quarters.

Going out to the fiscal third quarter ending in August, net should advance 31% to 79 cents a share from 60 cents a year ago. 

We are targeting ADBE for a move to $155 per share on this breakout. A protective stop can be placed near the $125 level.

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