What is ADBE's Intrinsic value?

Adobe Inc (ADBE) Intrinsic Value Analysis

Executive Summary

As of June 4, 2025, Adobe Inc's estimated intrinsic value ranges from $175.63 to $418.47 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $418.47 +1.4%
Discounted Cash Flow (5Y) $346.20 -16.1%
Dividend Discount Model (Multi-Stage) $280.27 -32.1%
Dividend Discount Model (Stable) $388.17 -5.9%
Earnings Power Value $175.63 -57.4%

Is Adobe Inc (ADBE) undervalued or overvalued?

With the current market price at $412.49, the stock appears to be moderately overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Adobe Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.74 1.01
Cost of equity 7.3% 10.5%
Cost of debt 4.0% 4.5%
Tax rate 20.0% 20.4%
Debt/Equity ratio 0.03 0.03
After-tax WACC 7.1% 10.3%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.7% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $21,505 (FY11-2024) to $49,869 (FY11-2034)
  • Net profit margin expansion from 26% to 28%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $346 $146,947M 81.0%
10-Year Growth $418 $177,748M 66.9%
5-Year EBITDA $652 $277,489M 89.9%
10-Year EBITDA $718 $305,425M 80.7%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.9%
  • Long-term growth rate: 4.0%
  • Fair value: $280.27 (-32.1% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.5% (Low) to 7.3% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $148 to $628
  • Selected fair value: $388.17 (-5.9% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $6,259M
Discount Rate (WACC) 10.3% - 7.1%
Enterprise Value $60,882M - $87,621M
Net Debt $(603)M
Equity Value $61,485M - $88,224M
Outstanding Shares 426M
Fair Value $144 - $207
Selected Fair Value $175.63

Key Financial Metrics

Metric Value
Market Capitalization $175803M
Enterprise Value $175200M
Trailing P/E 26.04
Forward P/E 28.33
Trailing EV/EBITDA 33.15
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.03

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $125.54
Discounted Cash Flow (5Y) 25% $86.55
Dividend Discount Model (Multi-Stage) 20% $56.05
Dividend Discount Model (Stable) 15% $58.23
Earnings Power Value 10% $17.56
Weighted Average 100% $343.93

Investment Conclusion

Based on our comprehensive valuation analysis, Adobe Inc's weighted average intrinsic value is $343.93, which is approximately 16.6% below the current market price of $412.49.

Key investment considerations:

  • Strong projected earnings growth (26% to 28% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.03)

Given these factors, we believe Adobe Inc is currently moderately overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.