Adobe’s Rebound Has Room to Run: 25% Upside by Year-End
Adobe’s (NASDAQ: ADBE) stock price is set up for a significant rebound that could add 25% to its share price by year’s end. This forecast is relative to a critical support target that aligns with multiyear trends and the impact of AI on its business. Long positioned to benefit from the application of AI-enabled services, Adobe’s Q3 results affirm its strength and its ability to continue returning capital to its shareholders.
Profits and capital returns are critical factors in Adobe’s stock price outlook because this market-leading AI is profitable, generates a substantial profit margin, and buys back shares aggressively.
Adobe’s FQ3 repurchase activity assisted a 5.3% year-over-year reduction in the share count. Due to the authorization, the pace of buybacks is expected to continue robustly for the next several years, which is sufficient for two to three more years.
The balance sheet reflects the buyback activity, including a year-to-date reduction in cash, current, and total assets, compounded by increased debt.
However, the critical takeaways from the balance sheet are the share count reduction and increase in treasury shares, which offset the declines and set shareholders up with leverage on the rebound.
Another critical detail is that the company produced a positive cash flow quarter in Q3; the company is well-capitalized, and leverage is low. Long-term debt is about 0.5x the equity and 1.25x the cash, leaving it in a fortress-like condition.
Adobe’s Beat-and-Raise Quarter Points to Acceleration
Adobe had a strong quarter in Q3 with revenue growth accelerating to nearly 11%, record revenue of $5.99 billion, strength in all reporting metrics, and accelerating RPO. The revenue growth was driven by a 12% increase in the core Digital Media segment, with Digital Experience growing by a slightly slower 9%.
Likewise, the core Business Pro and Consumer group grew by 15% while the Creative and Marketing Pro group grew by a slower 11%.
Investors should also focus on margin, another area of strength. The company experienced margin pressure at all levels, but less than expected, resulting in a 150 basis point decrease in net income margin year over year.
The net result is that adjusted EPS grew by an accelerated 14.2% due to the share count reduction, and guidance was raised. The guidance is the factor that will get Adobe’s stock into rebound mode and keep it moving higher in the back half of calendar Q3 and Q4 2025.
Adobe expects the Q3 strengths to carry through into Q4 and raised its targets for the year. The guidance for Q4 includes revenue and EPS targets above the consensus estimate. The guidance is likely to be cautious because this equates to only 9% growth, which is contrary to the trend and RPO.
RPO, or remaining performance obligation, is a forward-looking indicator that grew by 13% in Q3 and can accelerate further as AI-assist becomes mainstream.
Analysts and Institutions Set This Market Up to Rebound
The analysts and institutional activity have Adobe set up to rebound. The analysts are central to the stock price decline, having reduced their targets significantly since last year. They have the market set up to rebound because the post-release activity includes numerous price target changes, both increases and decreases, that align with the consensus target.
It forecasts a 25% upside from the critical support target that may be reached within the next twelve months.
Conversely, institutions own more than 80% of the stock and have been buying on balance all year. Given the growth, cash flow, and capital return outlook, they provide a solid support base likely to continue buying. Turning to the chart, Adobe’s stock price action reveals a bottom near $350 and indicators aligning with a market reversal.
MACD and stochastic show bullish signals, with stochastic indicating a strong one, suggesting buyers are back in control of this market.
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