Analog Devices (ADI) Upgraded To Strong Buy: Here's Why
Zacks Investment Research | Sep 05, 2016 10:20PM ET
On Sep 6, 2016, Zacks Investment Research upgraded Analog Devices, Inc. (NASDAQ:ADI) to a Zacks Rank #1 (Strong Buy). With a return of 17% over the past one year, positive estimate revisions over the last 30 days and encouraging revenue guidance for the fourth quarter of fiscal 2016, Analog Devices emerges as an attractive investment opportunity.
Rising Estimates & Encouraging Earnings Back Upgrade
Over the past 30 days, 9 out of 12 estimates for fiscal 2016 were revised upward, taking the Zacks Consensus Estimate up by 6 cents (2.1%) to $2.90 per share. Analog Devices also delivered positive earnings surprises in the last four quarters with an average beat of 10.2%.
In the third quarter of fiscal 2016, Analog Devices’ adjusted earnings per share (including stock based but excluding onetime items) of 82 cents and revenues of $869.6 million beat the Zacks Consensus Estimate of 76 cents and $852.5 million, respectively. Revenues grew 11% sequentially due to improved performance in the consumer market that offset weakness in industrial, automotive and communications markets.
Buoyed by the better-than-expected results, the company provided an encouraging outlook for the current quarter. For the fourth quarter of fiscal 2016, management expects revenues in a range of $910 million to $970 million while earnings per share are expected in a range of 84–94 cents.
Acquisition and Investments
Adding to the positives, the acquisition of Linear Technology (NASDAQ:LLTC) (in a cash and stock deal worth $14.8 billion) will make Analog Devices an industry leader across a wide range of products, customer breadth and scale. The company expects to achieve annualized cost synergies of $150 million within the first 18 months after completion of the transaction.
Recently, Analog also snapped up Cyber Security Solutions (CSS) unit of Sypris Electronics LLC for $42 million. This acquisition is expected to enhance Analog Devices’ position in the field of secure radio communications that are widely used in the aerospace and defense sectors.
The company is also investing in the health sector. It is working with research institutions and system OEMs to improve performance and affordability of medical electronics devices with major focus on clinical-grade vital signs monitoring and care-imaging applications.
In addition, extensive buybacks and encouraging dividends should keep investor interest alive in the stock.
Stocks to Consider
Besides Analog Devices, investors may consider Facebook, Inc. (NASDAQ:FB) , Shutterstock, Inc. (NYSE:SSTK) and Synchronoss Technologies, Inc. (NASDAQ:SNCR) . All sport Zacks Rank #1.
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