Analog Devices Down to Strong Sell - Analyst Blog


On Jan 8, 2014, Zacks Investment Research downgraded Analog Devices ( ADI ) to a Zacks Rank #5 (Strong Sell). The downgrade can be attributed to weak guidance and negative estimate revisions over the last 60 days.

Why the Downgrade?

Analog Devices' fourth-quarter revenues were down 2.4% year over year and at the lower end of management's guidance of $675 million to $700.0 million. Also, total end customer orders were down sequentially, with the book-to-bill ratio reporting below one.

The company provided a weak first-quarter 2014 outlook, with revenues expected to decrease in the range of -5% to -10% sequentially. Management expects gross margin to be in the range of 64.0%-65% and earnings per share in the range of 44 cents-52 cents for the upcoming quarter.

Additionally, the softening demand for semiconductors at the end of 2013, with some larger chip companies expecting sales to decrease sequentially in the upcoming quarter, creates near-term uncertainty. Last month, chipmaker, Texas Instruments, narrowed its sales guidance, while Semtech Corporation expects sales to dip in the upcoming quarter. We believe these uncertainties will remain an overhang on Analog Devices in the near term.

Estimate Revision

Estimate revision trend reflects bearish sentiment toward Analog Devices' earnings for the ongoing as well as next year.

Over the last 60 days, 18 of the 20 estimates for 2014 have been revised downward, dragging down the Zacks Consensus Estimate for earnings per share by 13% to $2.26 per share. For 2015, 6 of the 19 estimates moved south, lowering the Zacks Consensus Estimate by 12% to $2.62 per share.

Other Stocks to Consider

Not all semiconductor stocks are performing as poorly as Analog Devices. We recommend Microsemi Corporation ( MSCC ), which has a Zacks Rank #1 (Strong Buy). M/A-Com Technology Solutions Holdings, Inc. ( MTSI ) and NXP Semiconductors NV ( NXPI ), both Zacks Rank #2 (Buy) stocks, are also looking good at present.

ANALOG DEVICES (ADI): Free Stock Analysis Report

MICROSEMI CORP (MSCC): Free Stock Analysis Report

MA-COM TECH SOL (MTSI): Free Stock Analysis Report

NXP SEMICONDUCT (NXPI): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ADI , MSCC , MTSI , NXPI

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