Bull Of The Day: Analog Devices, Inc.

Analog Devices, Inc. (ADI - Free Reportis a leader in the analog semiconductor space that’s aiming to compete against Texas Instruments for supremacy.

Analog Devices topped our second quarter fiscal 2022 financial results on May 18 and provided upbeat guidance in the face of ongoing supply chain bottlenecks and a slowing economy. ADI continues to benefit from larger secular changes in the economy such as electrification.

Growing in Key Areas

Semiconductor maker Analog Devices expanded its reach to help it challenge the biggest player in the analog space, Texas Instruments (TXN - Free Report), when it completed its acquisition of Maxim Integrated in August 2021. Analog semiconductors are on the less flashy side of the booming chip industry that will remain the backbone of technology and arguably the entire economy for the foreseeable future.  

Analog semiconductors play crucial roles in countless devices and industries that next-generation digital semiconductors cannot meet. Analog chips help handle information not easily understood with 1s and 0s, such as temperature, speed, sound, electrical currents, and much more.

Analog Devices and its beefed-up portfolio include analog and mixed-signal, power management, as well as radio frequency, and digital and sensor technologies. ADI boasts around 125K customers globally for its over 75K products.

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Roughly half of Analog Devices’ 2021 revenue came from clients in the industrial sector, with 20% in automotive, 15% in communications, and 16% in the consumer markets. Analog Devices executives expect to benefit over the long haul from the constant expansion of automation, electrification (such as electric vehicles and beyond), and advanced connectivity.

More specifically, ADI projects to grow within six broad areas: Industrial 4.0, automotive ecosystems, connectivity & data centers, digital healthcare, immersive consumer, and aerospace.


Recent Performance & Outlook

Analog Devices’ revenue and adjusted earnings both climbed by roughly 31% in fiscal 2021, driven in part by its Maxim Integrated deal. Analog Devices beat our Q1 FY22 estimates in mid-February and raised its outlook. ADI then on May 18 topped our Q2 estimates and offered up guidance that came in well above Wall Street projections once again, even as countless companies across an array of industries lower their outlooks.

The company’s FY22 consensus earnings estimate is up 11% from where it was, with FY23’s outlook over 12% higher. This bottom-line positivity helps Analog Devices land a Zacks Rank #1 (Strong Buy) right now.

Current Zacks estimates call for ADI’s revenue to climb another 62% this year to $11.8 billion and around 7% higher in FY23. Meanwhile, its adjusted earnings are projected to surge by 43% and 9%, respectively. The slowing growth in 2023 reflects a smoothed-out YoY comparison following its Maxim Integrated acquisition.

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What Else?

Analog Devices stock has climbed 127% in the last five years to outpace the broader Zacks Tech sector’s 90% and its Semi-Analog & Mixed Market’s 111%. ADI shares have also fared far better recently than its tech peers, with the stock up 3% in the past 12 months compared to Tech’s 16% fall and the S&P 500’s 1% decline.

The stock hasn’t been immune to the 2022 downturn, but it’s only fallen 5%, while the market is down 14%. At around $165 per share, ADI trades 12% below its November records. This also provides the stock 25% upside to its Zacks consensus price target.

The downturn and its strong earnings outlook have Analog Devices trading right near its covid lows at 17.3X forward 12-month earnings. This also marks a discount to its industry and a 10% value compared to its own five-year median. And ADI’s Semiconductor - Analog and Mixed industry is in the top 8% of over 250 Zacks industries right now.

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Bottom Line

Alongside its Zacks Rank #1 (Strong Buy), which is driven by its double-digit, post-earnings release EPS revisions, Wall Street is bullish on Analog Devices, with 75% of the brokerage recommendations Zacks has at either “Strong Buy” or “Buys,” with nothing below a “Hold.” Investors also get a nice bonus of a dividend from a growth-focused technology stock.

Analog Devices in February raised its dividend by 10%, which was its 19th raise in the last 18 years. ADI’s dividend yields 1.8% right now to top many of its peers and the S&P 500’s 1.4%.

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