For example, assuming Adobe makes a 40% FCF margin on sales of $15.76 billion, as forecast by analysts surveyed by Seeking Alpha, then FCF in 2021 will be $6.304 billion. Why did I use a 2% FCF yield to value ADBE stock? This is implied FCF yield today. This represents a stock price of $879.23 per share (i.e., $1359 x today’s price of $646.97). The result, $417 billion, represents a 35.9% gain over today’s market value of $307 billion. This is seen by dividing $8.344 billion in forecast FCF by 2%. Using a 2% FCF yield to value the stock, this results in a target market value of $417 billion. If we apply a 40% FCF margin to that number it equals $8.344 billion. For example, in two years, analysts forecast that revenue could hit $20.86 billion by the year ending November 2023. Moreover, we can use this to forecast the coming’s years FCF. On average that works out to 40% for the full year ending November 2021 using Adobe’s own sales forecast for Q4. ![]() That is even higher than the 3 month 33.5% FCF margin. As a result, the 9 month FCF margin was 42.1% (i.e., $4.915 billion / $11.675 billion). It shows that there was $5.164 billion in operating cash flow from which $249 million in capex spending is deducted to reach $4.915 billion in FCF. ![]() This can be seen on page 9 of Adobe’s 10-Q filing of Sept. But, even more important, the FCF margin for the past 9 months was $4.915 billion. Moreover, Adobe’s 9 month sales were up 23.6% to $11.67 billion.
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