Adobe Systems Stock Could Hit New Highs After Earnings

Adobe Systems stock topped out at an all-time peak earlier

Jun 13, 2018 at 10:52 AM
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Adobe Systems Incorporated (NASDAQ:ADBE) is set to take its late-season turn in the earnings confessional after the market closes tomorrow, June 14. The Photoshop parent has a history of positive earnings reactions -- having closed higher the day after five of the company's last eight earnings reports -- and the options market is expecting a bigger-than-usual swing for Friday's trading.

Specifically, ADBE stock has averaged a single-day post-earnings move of 3.7% over the past eight quarters, regardless of direction. This time around, the options market is pricing in a more volatile 5.7% next-day move, according to Trade-Alert. A move of this magnitude to the upside would put Adobe Systems stock above $270 for the first time ever, according to its current perch at $255.45.

This would just be more of the same for the tech stock, though, which topped out at a record high of $256.77 earlier. What's more, ADBE shares have added nearly 84% on a year-over-year basis thanks to support from their 50- and 80-day moving averages, and are on track for a sixth straight quarterly win.

adbe stock daily price chart on june 13

Against this backdrop, sentiment toward the software stock is mostly optimistic. The June 250 call is home to peak open interest of nearly 7,250 contracts, and data from the major options exchanges shows buy-to-open activity here. In other words, speculators are betting on ADBE stock settling north of $250 at this Friday's close, when the front-month options expire.

And while short sellers have started actively betting against the stock -- short interest jumped 22.3% in the most recent reporting period -- these bearish bets account for just 1.3% of ADBE's available float. Plus, it wouldn't even take three days for shorts to cover, at the equity's average pace of trading.

What's more, over two-thirds of covering analysts maintain a "buy" or better rating. However, ADBE stock's average 12-month price target of $243.24 stands at a discount to current trading levels, meaning there's room for more brokerages to follow in the footsteps of Cowen and Company and Barclays. The two firms yesterday raised their Adobe Systems price targets, citing expectations for the company to post strong fiscal second-quarter earnings -- including strong growth in its digital media business.

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