ADI Stock: Is Analog Devices a Good Buy Before Earnings?

Analog Devices, Inc. (NASDAQ: ADI) is on a mission to bridge the physical and digital realms of electronics, and the semiconductor company has carved out a niche for itself in this space. It is the largest supplier of analog ICs, the core business which continues to be the main driver of growth although the company has a diversified portfolio.

After pulling back from post-earnings highs, shares of the Wilmington-based tech company have rebounded and made solid grains in recent weeks. The uptrend should continue at a steady but modest pace. As a clearer picture should emerge after next week’s earnings, investors will keep an eye on the stock.

Investor Sentiment

It is highly likely that the results will be as strong as those announced for the second quarter, thus improving market sentiment. Thus, those who ignore this opportunity might be disappointed later. Overall, ADI is a safe bet with promising long-term growth prospects. Additionally, the company has steadily increased its dividends, the latest being a 10% increase earlier this year. It paid around $390 million in dividends in the last quarter.


Read Management/Analyst Comments on Analog Devices Second Quarter 2022 Results


Going forward, demand conditions are expected to remain favorable as Analog Devices’ mixed/digital signal processing ICs are used in nearly every type of electronic equipment, from home appliances to entertainment gadgets. and from automobiles to medical devices. Building on the continued growth of these industries, management expects high single-digit annual revenue growth over the long term.

Outlook

The growth target will be achieved through strategic investments in capacity expansion and by strengthening the company’s hybrid model. Recently, the bottom line received an additional boost from new government regulations offering incentives to support domestic semiconductor manufacturers.

Margin performance is strong enough to offset high operating costs. However, the highlight is healthy free cash flow which stood at over $1 billion at the end of April. The question is whether the uptrend is sustainable in the current market scenario. Although Analog Devices is not completely immune to macroeconomic challenges and declining consumer spending, the company faces less risk than most of its competitors.

Broad-based growth

During the April quarter, it was an exceptional spectacle for all four operating segments. As a result, revenue jumped 79% to $2.97 billion, which is also above market forecast. At $2.40 per share, adjusted earnings were up 56% year over year. Earnings also beat estimates, as they have in every quarter since the start of 2020.

From Analog Devices’ second quarter 2022 earnings conference call:

“Over the past decade, through both strong organic investments and strategic mergers and acquisitions, we have built the broadest and most successful analog mixing signal and power portfolio in the industry. Our offering ranges from microwaves to bits, nanowatts to kilowatts, sensors to cloud, and increasingly from components to subsystems, our vast arsenal of technologies, as well as the level of commitment and support that we provide to our customers have earned us the top spot in high performance analog, RF and power mixing signal.


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The company will release its third quarter results on August 17 before the start of regular trading. Consensus calls for a 41% increase in adjusted earnings to $2.43 per share, on revenue of $3.05 billion.

After ignoring a brief downturn, the ADI entered an upward spiral and approached the January peak. The stock, which has gained 18% in the past 30 days alone, traded mostly lower in Monday’s session.

About Barbara J. Ross

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