Analog Devices Delivers Well Above Expectations

Analog Devices (ADI) reported a more than tripling of net income in their fiscal second quarter and reported both sales and earnings ahead of Wall Street’s expectations.  The maker of high-performance analog, mixed-signal and digital signal processing integrated circuits benefited from a 41% leap in total sales to $668.2 million versus estimates, particularly strong was revenue from industrial customers which grew by 54%.  This surge in sales allowed ADI to pull in net income of $167.1 million or 55 cents per share, from $51.7 million or 18 cents per share last year.  Analysts were expecting EPS of 50 cents on sales of $664.1 million, so the real results were far stronger than expected and the stock is more than 4% higher on Wednesday morning as a result.

Not only was the quarter just ended better than expected, but the company was more optimistic towards the current quarter as well.  Analog Devices upped guidance to 59 cents to 61 cents on sales of $695 million to $715 million in revenue.  Coming into the report analysts were predicting 52 cents on $659.7 million, and the guidance was more aggressive than even the most bullish of analyst estimates ($.56 on $674 million).  Gross margin rose to 65% from 55.1% in the last quarter, and ADI foresees a continuation of profitability in the 65% to 66% range next quarter.

Management backed up their more profitable outlook by raising the quarterly dividend by 10% to $.22 per share.  The implied annual yield now stands at 3.1% which of course is a slight improvement in our methodology.  Dividend increases are a shareholder friendly action that we believe demonstrates the confidence that management has in the strength of the company going forward.

The last time we wrote about Analog Devices on this blog was as a part of The Technology 10 article pointing to Undervalued tech stocks back in February of 2009.  The timing of that article proved to be excellent as many on the list have doubled since then, but ADI which has seen fundamentals improve greatly has appreciated more modestly, about 50% since that time.  With that said, we are reaffirming our Fairly Valued rating on ADI as of this week’s report.  The stock does trade on the low side of its historically normal ranges of price-to-sales and price-to-cash earnings.  Given the improvement to fundamentals we would not be surprised to see it trading at $34 per share before long, yet the downside risk could take it back down to $25 according to our methodology.

Read the original story at Ockham Research