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Bear Of The Day: Analog Devices (ADI)

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Analog Devices (ADI - Free Report) has seen estimates drop and the Zacks Rank for this stock dropped right along with them. Earnings estimate revisions are the foundation of the Zacks Rank so let's look at why this stock is now a Zacks Rank #5 (Strong Sell) in this Bear of the Day article.

Description

Analog Devices, Inc. is a world leader in the design, manufacture and marketing of a broad portfolio of high performance analog, mixed-signal, and digital signal processing (DSP) integrated circuits (ICs) used in virtually all types of electronic equipment. Since their inception in 1965, they have focused on solving the engineering challenges associated with signal processing in electronic equipment. Used by over 100,000 customers worldwide, their signal processing products play a fundamental role in converting, conditioning, and processing real-world phenomena such as temperature, pressure, sound, light, speed, and motion into electrical signals to be used in a wide array of electronic devices. They focus on key strategic markets where their signal processing technology is often a critical differentiator in their customers' products, namely the industrial, automotive, communications, and consumer markets.

Earnings History

I see a good earnings hisotyr for ADI, with the company beating the Zacks Consensus Estimate in each of the last four quarters.  That would be a positive influence on the Zacks Rank, so it is not the reason the stock has the lowest Rank.

Estimate Revisions

This is clearly the reason why the stock is a Zacks Rank #5 (Strong Sell).  Estimates for this quarter have come in from $1.38 to $1.22 as have estimates for next quarter as well. Those numbers fell from $1.44 to $1.29.

Full year numbers have also slid lower here with 2019 moving from $5.45 to $5.24 and next year coming in at $5.51 after reaching up to nearly $6 just 60 days ago.

Not ADI's Fault

As I scanned the news looking for a reason for the dip in consensus estimates, I didn't see much.

I did find an upgrade from Goldman Sachs, as they put the stock at Buy after it was a sell with a $114 price target.  That is good news, so why are numbers falling?

Trade War?

AVGO reported a while back and they took down forward guidance in a big way.  Many analysts applied the same logic to other names in the same sector as well as suppliers to chip stocks.  

The recent change in the trade war - the cease fire - has yet to show up in earnings estimate revisions.  That could make this stock worth a deeper look.  

ADI reports again in late August so you have plenty of time with this one.

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