As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Adobe Inc (ADBE).
Profile
Adobe provides content creation, document management, and digital marketing and advertising software and services to creative professionals and marketers for creating, managing, delivering, measuring, optimizing, and engaging with compelling content multiple operating systems, devices, and media. The company operates with three segments: digital media content creation, digital experience for marketing solutions, and publishing for legacy products (less than 5% of revenue).
Recent Performance
Over the past twelve months the share price is up 8.18%.
Source: Google Finance
Inputs
- Discount Rate: 9%
- Terminal Growth Rate: 4%
- WACC: 9%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 8.89 | 8.16 |
| 2025 | 10.21 | 8.59 |
| 2026 | 11.74 | 9.07 |
| 2027 | 13.49 | 9.56 |
| 2028 | 15.58 | 10.13 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 324.06 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 210.62 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 45.50 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 256.12 billion
Net Debt
Net Debt = Total Debt – Total Cash = -1.98 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 258.10 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $582.61
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $582.61 | $586.55 | -0.68% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $582.61 share is lower than the current market price of $586.55. The Margin of Safety is -0.68%.
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2 Comments on “Adobe Inc (ADBE) DCF Valuation: Is The Stock Undervalued?”
Tobias, I have listened to you on your podcast as well as WSB and others and have enjoyed your insights.
ADBE Adobe came up on my radar today as something to possibly purchase and hold until it hits intrinsic value. Do you continue to feel DCF is $582 or thereabouts?
Best to you and yours.
At ~$450 it might be the best risk adjusted opportunity for ADBE in 20 years.