How A Lower Effective Tax Rate Will Impact Adobe’s Stock Price

by Trefis Team
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Recently, Adobe (NASDAQ:ADBE) announced that the new tax reform will lower company’s effective tax rate for 2018 and beyond. As a result, the stock price for the company rallied by nearly 3.5% on Tuesday. While it is unclear what the new tax rate for the company will be, we have created an illustrative dashboard that tests the sensitivity of Adobe’s stock price to changes in effective tax rate. You can modify assumptions such as total revenues, earnings multiples, margins and others to see how the dynamics of tax rate/market price sensitivity change.

Our price estimate for Adobe stands at $178, which is below the current market price.

Our dashboard analysis indicates that a 1% decline in the effective tax rate will increase net income by $26 million. This will translate into EPS growth of nearly 5 cents. As a result, the company’s stock price could improve by nearly $2 based on a forward P/E of 36. You can modify the primary input – the Tax Rate Change – to a higher value to check the impact on Adobe’s stock price.

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