Earnings to Watch: Adobe Systems, FactSet Research, Williams-Sonoma

John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As of this writing, the Dow Jones Industrial Average has made 10 successive all-time record highs. The only certainty with luck is that it’s bound to change, and in our case the market will be ripe for a pullback sooner or later.

Stocks reached a historic low on March 9, 2009, and have effectively gone straight up ever since. The S&P 500 recorded a low of 683 in March 2009 and has rebounded more than 128% in less than 4 years. The past week in March is also significant as the current bull market turns 4 years old.

My experience leads me to believe that investors should focus on selecting individual companies or market sectors that are poised for growth, and to give only peripheral attention to the broader market indices.

Although I believe the market is poised for a pullback, here are three well-performing stocks I’m following that have upcoming earnings. The Motley Fool also recommends all three of these companies for investment.

Adobe Systems (NASDAQ: ADBE)
Tuesday, March 19 after market close; EPS $0.31 / Revenue $986 million

I wrote positively on Adobe Systems back on February 8 when insider Amy Banse purchased 5,000 shares of stock at $38.06 per share. The stock is nearly 10% higher since I wrote the article less than 1 month ago.

It is well-known within the technology community that Apple co-founder, Steve Jobs, did not have a preference for Adobe’s Flash product and decided to withhold support for Flash on the iPhone and later on the iPad. This distaste has affected the view of Adobe on Wall Street and has historically constrained the stock valuation.

On March 11, Bank of America Merrill Lynch raised its price target on Adobe to $45 from a previous $40 however the firm lowered its rating to Neutral from Buy. The analysts cited the lack of visibility on Adobe’s evolving business model ahead of Tuesday’s earnings lease.

As I’ve written previously, Adobe’s software products have traditionally been the victim of piracy, causing the firm to forgo additional customers and sales revenue. The company is transitioning to an online model for its creative suites, which requires users to formally register and pay for the service.

Although the stock has run 10% in quick order, I disagree with Bank of America and would buy Adobe shares on any weakness.

FactSet Research (NYSE: FDS)
Tuesday, March 19 after market close; EPS $1.11 / Revenue $213.3 million

Ever wonder how Wall Street analysts and television commentators are able to digest seemingly endless amounts of data? A possible answer is FactSet Research, which provides research tools for industry analysis, multicompany comparisons, and a host of other valuable resources. However, the grown-up investor tools from FactSet cost many thousands of dollars, which gives the company a $4.4 billion market capitalization.

FactSet Research competes directly with Bloomberg, the company founded by Mayor of New York Michael Bloomberg, as well as Standard & Poor’s Capital IQ service. Thomson Reuters is an additional competitor, all of which are privately-held or subsidiaries of other companies.

Shares of FactSet have risen 14% year-to-date. For the current quarter, analysts on Wall Street believe the stock price is reflective of the company’s growth prospects. Sales have risen 9% in the last year, while earnings have grown at a higher 14% rate. However, the stock trades at a rich 23x multiple, on the high end of the range for a software company.

Goldman Sachs is among the bears on Wall Street going into Tuesday’s earnings results. The firm has a Sell rating and $79 price target.

I am in agreement Wall Street that the current valuation fully reflects the company’s growth prospects. Investors could also see softness in the current quarter, as analysts believe new subscription revenue may be slower than expected. I recommend staying out of the stock.

Williams-Sonoma (NYSE: WSM)
Tuesday, March 19 after market close; EPS $1.29 / Revenue $1.40B

Williams-Sonoma is a specialty retailer that operates 584 stores across the United States and Canada. The San Francisco, CA headquartered company operates under its namesake Williams-Sonoma, Pottery Barn, West Elm, and Rejuvenation brand names. The $4.4 billion retailer offers everything from cookware and kitchen appliances with Williams-Sonoma, to home furnishings with Pottery Barn / West Elm and lighting fixtures with Rejuvenation.

On January 16, the company reported its holiday sales results for 2012, with a 4.4% increase for comparable brand sales. System-wide sales increased 4.8% to $1.014 billion, compared to the nine-week holiday season for 2011.

The improved holiday results apparently were not good enough for Goldman Sachs and Raymond James. Both firms downgraded the stock the following morning on January 17. Analysts at Goldman believe that Williams-Sonoma has seen a peak in profit margins and earnings.

My research indicates the company’s operating margin and net margin are in-line with the specialty retail industry. This leads me to believe that WSM could indeed improve their margins further, especially given their high-end clientele. Therefore I disagree with the analysts at Goldman Sachs.

In contrast to Goldman, Canaccord Genuity reissued its Buy rating with a $57 price target ahead of Tuesday’s earnings release. I am more on board with Canaccord and less so with Goldman.

Shares of WSM are effectively unchanged year-to-date but have risen nearly 25% in the last 12 months. Revenue has risen 7% during the last 4 quarters, while earnings have grown 12%.

johnmacris has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems, FactSet Research Systems, and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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