Earnings Previews: Adobe, ProFrac

Markets

The three major U.S. equity indexes closed mixed Tuesday, with the S&P 500 Index dipping by 0.39% and the Dow Jones industrials closing down 0.5%. The Nasdaq added 0.18% after a disastrous Monday session. All three traded up by less than 1% in Wednesday’s premarket session, as traders and investors await the Federal Reserve’s interest rate announcement.

Both the two-year and 10-year Treasury notes closed at year-to-date highs Tuesday, with the 10-year a scant four basis points higher. In early trading Wednesday morning, the 10-year note traded about seven basis points higher at 3.37% to the two-year’s 3.3% rate. The market appears to have priced in a 0.75% hike, even though the Fed’s last signal called for a 0.5% increase to the federal funds rate. Will the Fed stick to its plan or panic? The money seems to be calling for panic.

Before markets open on Thursday, Commercial Metals, Jabil, Kroger and Planet Labs are scheduled to report earnings.

There are no notable reports due out Friday, and U.S. markets are closed Monday in observance of the Juneteenth holiday, commemorating the date (June 19, 1865) that a U.S. Army officer notified African Americans in Texas that the Civil War had ended and they were now free.

Here is a look at two companies scheduled to release quarterly results Thursday afternoon.

Adobe

Software maker Adobe Inc. (NASDAQ: ADBE) has seen its share price decline by 31.5% over the past 12 months. Since posting an all-time high in late November, the shares have plunged by 46%.

As has been true of other growth stocks, price targets have been lowered over the past six months and revenue estimates have been reduced as well. To counter that negative sentiment, Adobe may have to part with some of its free cash flow, which has totaled $6.84 billion over the past four quarters. Share buybacks have added 3.25% to a dismal annual return. Adobe does not pay a dividend after 35 years as a publicly traded company. Just sayin’.

Of 31 analysts covering the stock, 26 have a Buy or Strong Buy rating and the other five have a Hold rating. At a recent share price of around $370.80, the upside potential based on a median price target of $550.00 is 48.3%. At the high target of $650, the upside potential is 75.3%.

Fiscal second-quarter revenue is forecast at $4.35 billion, which would be up 2.0% sequentially and 13.6% higher year over year. Adjusted earnings per share (EPS) are forecast at $3.31, down 1.9% sequentially but up 9.2% year over year. For the full 2022 fiscal year ending in November, analysts are currently forecasting EPS of $13.67, up 9.5%, on sales of $17.85 billion, up 13.1%.

Adobe stock trades at 27.1 times expected 2022 EPS, 23.0 times estimated 2023 earnings of $16.11 and 19.8 times estimated 2024 earnings of $18.70 per share. The stock’s 52-week range is $367.31 to $699.54. The low was posted on Tuesday. Adobe does not pay a dividend. Total shareholder return for the past year was negative 33.4%.

ProFrac Holdings

ProFrac Holding Corp. (NASDAQ: PFHC) came public through an initial public offering last month. As the name suggests, the company provides services to oil and gas exploration and production companies. ProFrac is controlled by Dan and Farris Wilks, who owns about 71% of the company’s Class A common stock and 96.4% of outstanding Class B stock. The company’s primary business is providing pressure pumping services for hydraulic fracturing (fracking) wells. Since its IPO at $18 a share on May 13, the shares have added nearly 24%.

All six brokerages covering the stock have given the shares a Buy or Strong Buy rating. At a share price of around $22.40, the upside potential based on a median price target of $26.00 is 16.1%. At the high target of $31.50, the upside potential is 39.3%.

This is ProFrac’s first quarterly report as a public company, and it will contain results for the fiscal first quarter that ended in March. Analysts expect the company to report revenue of $421.78 million and EPS of $0.22. For the full 2022 fiscal year ending in December, consensus estimates call for EPS of $2.21 on revenue of $2.17 billion. The company reported revenue of $768.35 million in the 2021 fiscal year.

ProFrac stock trades at 10.1 times expected 2022 EPS, 5.8 times estimated 2023 earnings of $3.89 and 5.5 times estimated 2024 earnings of $4.07 per share. The stock’s post-IPO range is $16.75 to $23.62. The company has not announced a dividend payment. The company’s quiet period ends June 22.

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