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Analog Devices (ADI) Up 6.7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Analog Devices (ADI - Free Report) . Shares have added about 6.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Analog Devices due for a pullback? 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 Q3 Earnings & Revenues Beat Estimates

Analog Devices delivered third-quarter fiscal 2019 adjusted earnings of $1.26 per share, beating the Zacks Consensus Estimate by 4 cents. However, the bottom line decreased 16.6% year over year and 7.3% sequentially.

Revenues of $1.48 billion surpassed the consensus mark of $1.45 billion. However, the top line declined 5% year over year and 3.3% from the previous quarter.

This can be attributed to the company’s weak performance in consumer, industrial and automotive end markets during the reported quarter. Moreover, macroeconomic headwinds affected the top line.

Nevertheless, the company’s solid momentum in the communications market was positive. Further, its strong focus toward product portfolio diversification and innovation remains a tailwind. Also, growth opportunities in electric vehicles and 5G are encouraging and are likely to benefit the company in the near term.

Revenues by End Markets

Industrial: The company generated $752.53 million revenues (51% of total revenues), declining 4% year over year.

Communications: Revenues from this market came in $316.46 million (21% of revenues), improving 7% year over year.

Automotive: Revenues from this market came in $227.46 million (15% of revenues), decreasing 9% from the year-ago quarter.

Consumer: This market generated $183.4 million revenues (12% of revenues), plunging 18% on a year-over-year basis.

Operating Details

Non-GAAP gross margin contracted 80 bps on a year-over-year basis to 70.4%.

Adjusted operating expenses, as a percentage of revenues came in 29.6%, expanding 80 bps from the year-ago quarter.

Non-GAAP operating margin contracted 160 bps on a year-over-year basis to 40.8% during the reported quarter.

Balance Sheet & Cash Flow

As of Aug 3, 2019, cash and cash equivalents were $612.2 million, down from $713.6 million as of May 4, 2019.

Long-term debt was approximately $5.3 billion, declining from $5.6 billion at the end of fiscal second quarter.

Net cash provided by operations was $552.5 million, down from $670.9 million in the previous quarter.

Further, the company generated $494 million of free cash flow during the reported quarter.

Additionally, Analog Devices returned $300 million to shareholders through dividends and share repurchases.

Guidance

For the fourth quarter of fiscal 2019, Analog Devices expects revenues to be $1.45 billion (+/- $50 million).

Non-GAAP earnings are expected to be $1.22 (+/- $0.07) per share.

Further, the company anticipates non-GAAP operating margins to be approximately 40%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -5.06% due to these changes.

VGM Scores

At this time, Analog Devices has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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