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Bull of the Day: Analog Devices (ADI)

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Founded in 1965 and 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.

The company’s products include data converters, amplifiers and linear products, radio frequency integrated circuits, power management products, and sensors and processing products.

Solid Quarterly Results and Upgraded Guidance

The chipmaker reported excellent results for its Q4 ended October 28, beating our estimates on both the top and bottom lines. Adjusted earnings of $1.45 per share were ahead of the Zacks Consensus Estimate by 8 cents and up 38.1% year over year.

Revenues jumped 53.6% year over year to $1.54 billion. Results were driven by strong growth across all segments.

"The fourth quarter of 2017 drove a strong finish to the fiscal year, with high-quality revenue growth and operational execution that expanded gross and operating margins, and delivered stellar earnings per share growth," said the CEO.

Returning Cash to Shareholders

The company has retuned approximately $8 billion to shareholders via dividends and share repurchases in the past 10 years.

They have been consistently increasing their dividends and aim to increase their dividends by 5% to 10% annually.

Acquisition of Linear Technologies

Earlier this year, 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 deepening its competitive moat and adding products in other fast-growing categories.

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 $5.23 per share and $5.61 per share, up from $4.96 and $5.42, 30 days ago.

The company has a pretty good record at beating estimates, with not a single miss in the past five years; the average quarterly beat for the last four quarters was more than 16%.

Analog Devices, Inc. Price, Consensus and EPS Surprise

Analog Devices, Inc. Price, Consensus and EPS Surprise | Analog Devices, Inc. Quote

Positive Industry Outlook

“Semiconductor-Analog” industry is currently ranked 24 out of 265 Zacks industries (top 9%). 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.

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