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Bear of the Day: Analog Devices (ADI)

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Analog Devices (ADI - Free Report) is the $44 billion manufacturer of analog, mixed signal and digital signal processing (DSP) integrated circuits, and other semiconductor devices found in cars, planes, factories and home appliances around the globe.
 
ADI moved to the cellar of the Zacks Rank after reporting a disappointing Q4 fiscal 2019 (ended October) and outlook that caused analysts to take down estimates for their FY20. Adjusted earnings of $1.19 per share missed the Zacks Consensus Estimate of $1.21, as the bottom line decreased 19.6% year over year and 12.5% sequentially.
 
Revenues of $1.44 billion in the quarter also missed the Zacks Consensus Estimate by 0.6%. And the top line declined 6% year over year and 5.5% from the fiscal third quarter.
 
This downside can be attributed to weak performance of the company in all end-markets served. Moreover, macroeconomic headwinds negatively impacted the topline.
 
Analysts responded to the company outlook by dropping full-year 2020 revenue projections to $5.66 billion, representing a 5.46% decline from FY19.
 
And the 2020 EPS consensus fell 10.3% to $4.78 from $5.33, for a projected 7.2% drop on the bottom line.
 
Revenues by End Markets
 
Industrial generated revenue of $744.1 million (accounting for 52% of total revenues), which was flat year over year.
 
Communications revenue came in at $260.1 million (18% of revenues), decreasing 19% year over year.
 
Automotive revenue fell to $226.1 million (16% of revenues), down 8% from the year-ago quarter.
 
Consumer generated revenue of $212.8 million (15% of revenues), reflecting a 7% decline on a year-over-year basis.
 
Guidance Lowered
 
For the first quarter of fiscal 2020, Analog Devices expects revenues to be $1.30 billion (+/- $50 million), representing a 15.6% decline from the year ago quarter. Prior to this disappointing guidance, the Zacks Consensus Estimate for Q1 was pegged at $1.41 billion.
 
Non-GAAP earnings are expected to be $1 (+/- $0.07) per share, reflecting a 24% y-o-y drop. The consensus mark for the same was $1.16 per share.
 
The company anticipates non-GAAP operating margins to be approximately 36.7% (+/- 100 bps).
 
Clearly ADI is not going out of business despite being a leader of analog solutions in a digital world.
 
But until the estimates stop going down and start heading back up, it may be best to stand aside. The Zacks Rank will let you know.
 
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