Back to top

Image: Bigstock

Bull of the Day: Analog Devices (ADI)

Read MoreHide Full Article

Headquartered in Norwood, Massachusetts, Analog Devices (ADI) is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed signal and digital signal processing (DSP) integrated circuits.

Analog chips are used primarily in smartphones for managing radio signals and other purposes. These chips convert real world signals into digital signals. Apple is Analog's one of the biggest customers.

Solid Quarterly Results and Upgraded Guidance

The chip maker reported excellent results for Q4, beating both the Zacks Consensus Estimates and their own guidance. Adjusted earnings of 94 cents per share were significantly ahead of the Zacks Consensus Estimate of 73 cents.

Revenues were up 27.9% year over year and beat the estimates. Free cash flow margins to were up 520 basis points year-over-year to 33.7%.

Improved performance across all the markets--industrial, automotive, consumer and communications—drove the results.

Shares rose almost 5% after the results.

Returning Cash to Shareholders

The company has retuned approximately $7 billion to shareholders in the past 10 years. After strong results, they raised quarterly dividend to 45 cents from 42 cents.

They aim to increase their dividend by 5% to 10% annually.

Acquisition of Linear Technologies

Last week, the company completed the acquisition of another analog chipmaker Linear Technology for about $14.8 billion. The merger is expected to reduce Analog’s reliance on Apple while adding products in other fast growing categories.

“The combination of Analog Devices and Linear Technology creates an analog industry powerhouse,” said the CEO. “Together, we are capable of solving more of our customers' biggest and most complex challenges at the intersection of the physical and digital domains. We expect that this combination will create tremendous value for our customers, our employees, and our shareholders for many years to come.”

Surging Estimates

Analysts have significantly raised their estimates for the company after strong earnings and upgraded guidance. Zacks Consensus Estimates for the current and next year are now $4.02 per share and $4.65 per share, up from $3.39 and $3.69, 30 days ago.

The company has a pretty good record at beating estimates. They have missed only once in the past five years; the average quarterly beat for the last four quarters was more than 14%.

 

 

Positive Industry Outlook

“Semiconductor-Analog” industry is currently ranked 18 out of 265 Zacks industries (top 7%). While some of the traditional businesses for chips have slowed down, many newer growth areas have emerged, leading to rising demand for better and faster chips.

Disclosure: I own shares of ADI in the Income Investor portfolio.

More Stock News: 8 Companies Verge on Apple-Like Run                                                                                                                                                                                                         

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.

A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Analog Devices, Inc. (ADI) - free report >>