Analyst Boosts Sentiment On Analog Devices As Company Outperforms Peers In Down Cycles And Sets Positive Outlook

Morgan Stanley analyst Joseph Moore upgraded Analog Devices Inc ADI from Equal-Weight to Overweight and raised the price target from $176 to $225.

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Analyzing past cycles, Moore finds that while duration has stayed relatively consistent at 22-26 months, over and under-shipment between processes is inconsistent. 

This current cycle peaked in May 2022, and taking a 24-month peak-to-trough view, the analyst expects a bottom in May 2024. Consensus revisions have turned hostile, and numbers have derisked, turning us more constructive on the group as the visibility of a base has improved. 

Moore preferred a late downcycle playbook, upgrading ADI and turning more optimistic on the group.

ADI has outperformed peers in the past three down cycles, as gross margin has stayed resilient through the cycle. The company's forward earnings are derisked as the company has already guided down materially. The company has relatively higher ASP products, which should limit direct competition with emerging Chinese capacity.

Conditions remain challenging, but the company had indicated that with a 14-week quarter in January, it could be at the bottom. The analyst now budgeted for quarterly revenues to fall 23%.

Price Action: ADI shares traded higher by 1.69% at $182.88 on the last check Friday.

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