Analysts Mixed On Analog Devices Amid Expectations Of Cyclical Recovery: Details

Piper Sandler analyst Harsh V. Kumar reiterated a Neutral rating on Analog Devices, Inc ADI with a price target of $175.

ADI reported a mixed October quarter with January guidance below Street expectations. The entire revenue profile for the company continues to be impacted by macro weakness across the analog space, with industrial lagging the furthest behind.

Management expects the inventory correction to last most of the first half of the 2024 calendar year. On the cost side, management has effectively cost-corrected to deal with the macro pressure as the operating margin remains above 40%.

Overall, Kumar believes ADI is well-positioned from an operations perspective to deal with the down cycle. Despite this, Kumar stays on the sidelines, as it is too early to call for a recovery from the current macro pressures on the business. The analyst projects Q1 revenue and EPS of $2.49 billion and $1.70, respectively.

Citi analyst Christopher Danely reiterated a Buy on ADI, given superior execution. ADI reported results roughly in line with consensus but guided lower as the company underestimated the amount of excess inventory.

Danely is now modeling a peak-to-trough sales decline of 26% and a gross margin decline of roughly 6%. He notes that investors can build positions as the guidance cuts are becoming smaller, not larger.

BMO Capital analyst Ambrish Srivastava reiterated an Outperform with a price target of $200. All the elements are in place for the bottoming process. Over a year, earnings have reset about 33% lower (FY24), the analyst modeled for a ~30% reduction in revenues from peak levels, and lead times are now primarily standard.

Additionally, while still early, Srivastava heard a couple of incremental positives around the rate of cancellations falling and bookings stabilizing. To be sure, he lowered his estimates one more time.

The analyst projects Q1 revenue and EPS of $2.5 billion (prior $2.7 billion) and $1.67 (prior $1.98), respectively.

Goldman Sachs analyst Toshiya Hari reiterated a Buy, citing proximity towards a cyclical trough.

Raymond James analyst Melissa Fairbanks reiterated an Outperform and $200 price target. 

With in-line results and guidance generally in line with investor expectations (though meaningfully below published Street estimates), ADI appears to be tracking broader industry trends.

While shares traded lower Tuesday, the stock modestly outperformed peers. As cancellations fell sharply and bookings have stabilized, management expects the inventory correction to taper through 1H24, with the overhang depleted mainly by the July quarter.

Perhaps more importantly, despite another step down in sales, management expects to find a bottom for the operating margin around the 41.5% level, solidly above most analog peers facing similar pressure on sales volume. 

Oppenheimer analyst Rick Schafer maintained an Outperform and a $215 price target, remaining long-term buyers.

The analyst sees ADI numbers derisked and set for recovery in 2H24. The slope will hinge on macro and China. Gross margin troughs 68%-69% in 2Q, back >70% by end FY24.

In the long term, ADI's product diversification and core position in auto and industrial remains intact.

The analyst projects Q1 revenue and EPS of $2.5 billion and $1.83 (prior $1.77).

Susquehanna analyst Christopher Rolland reiterated a Positive and lowered his price target from $215 to $210. ADI reported in-line results but worse guidance, particularly when considering the addition of a 14th week in the January quarter. 

ADI's update was rather unsurprising, in line with peer commentary. While the near-term may remain challenged, Rolland is confident management's extensive list of design wins can support growth when the upcycle comes.

Price Action: ADI shares traded higher by 0.84% at $182.77 on the last check Wednesday.

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