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Why Is Analog Devices (ADI) Down 1.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Analog Devices (ADI - Free Report) . Shares have lost about 1.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Analog Devices due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Analog Devices Beats Q3 Earnings & Revenue Estimates

Analog Devices Inc. reported third-quarter fiscal 2020 adjusted earnings of $1.36 per share, which beat the Zacks Consensus Estimate of $1.33. Also, the bottom line increased 8% year over year.

Revenues of $1.46 billion also surpassed the Zacks Consensus Estimate of $1.45 billion. The top line increased 11% sequentially but declined 2% year over year.

The sequential increase in revenues was led by growth in communication and industrial markets.

Revenues by End Markets

Industrial: The company generated revenues of $774.4 million (accounting for 53% of total revenues), up 3% year over year.

Communications: Revenues from this market came in at $363.6 million (25% of revenues), increasing 14% year over year.

Automotive: Revenues from this market came in at $162.5 million (11% of revenues), down 29% from the year-ago quarter.

Consumer: This market generated revenues of $155.7 million (11% of revenues), reflecting a 13% decline on a year-over-year basis.

Operating Details

Non-GAAP gross margin contracted 50 basis points (bps) on a year-over-year basis to 69.9%.

Total operating expenses were $402 million, down 8.1% from the year-ago quarter.

Non-GAAP operating margin expanded 150 bps on a year-over-year basis to 42.3% for the reported quarter.

Balance Sheet & Cash Flow

At fiscal third quarter-end, cash and cash equivalents were $1.09 billion, up from $784.9 million in the prior quarter.

Long-term debt was approximately $5.1 billion, flat sequentially.

Net cash provided by operations was $557.2 million in the fiscal third quarter, up from $429 million in the prior quarter.

The company generated $536 million of free cash flow during the fiscal third quarter.

Additionally, Analog Devices returned $247 million to shareholders through dividends and share repurchases in the reported quarter.

Guidance

For fourth-quarter fiscal 2020, Analog Devices expects revenues to be $1.44 billion (+/- $70 million).

Non-GAAP earnings are expected to be $1.32 (+/- $0.10) per share.

The company anticipates non-GAAP operating margins to be 42% (+/- 100 bps).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Analog Devices has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Analog Devices has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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