Analog Devices Raises Its Long-Term Growth Targets

Apr 7, 2022 at 5:00 AM
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    Analog Devices Raises Its Long-Term Growth Targets

    Analog Devices Steadies After Investor Day Event 

    Price action in Analog Devices (NASDAQ: ADI) wobbled in the wake of its investor day event but seems to have steadied now. In the event, the company laid out its new vision and how it expects to achieve a 7% to 10% CAGR over the next few years. This target is up from an earlier forecast for mid-single-digit growth and is supported by the company’s efforts to chase profitable growth in four key secular trends. Those trends are electrification, digitization, automation, and connectivity, trends that have been driving tech for years and that were accelerated by the pandemic. 

    The growth will also be aided by the integration of Maxim into the fold. The merger with Maxim is already paying off in terms of top-line growth and cost savings and those savings are being achieved ahead of schedule. The company says it will achieve $400 million in savings by the end of the fiscal year and raised its target for total savings to $1 billion over the next five years. 

    CEO Vincent Roche noted, "As we move up the technology stack, capture opportunity presented by key secular trends and deepen customer relationships through innovation, we have great confidence we will achieve our increased annual revenue growth target of 7% to 10%. While we deliver sustainable growth, we see a path to $15 of adjusted earnings per share and 40% free cash flow margin, enabling us to create significant value for shareholders for years to come."

    The Analysts And Institutions Are Buying Analog Devices 

    The analysts came away from the investor day event with a positive vibe. More than one, including analysts from Truist and Raymond James, said the new targets are reasonable given the strength of trends within tech. The naysayer is Goldman Sachs which issued a price target reduction while maintaining a Buy rating. Goldman’s new price target is $183, down from $207, and below the consensus of $200. The consensus is about 25% above the recent price action and has been holding steady over the past 30 and 90 day periods. 

    The institutions are even more bullish, having bought more than 16% of the market cap over the past year (with shares trading near $162). This brings their holding up to over 86% and growing. It is worth noting that institutional activity was highest in the Q4 period of 2021 when they purchased $9.5 billion or about 11% of the market worth of the shares. Their activity has slacked off in the time since but remains net-bullish and supportive of share prices. 

    Analog Devices Is A Rare Breed Among Tech Companies 

    Analog Devices is a rare breed among tech companies because it pays a dividend. It’s even rarer because it pays a nice 1.9% yield and it comes with a positive outlook for distribution growth as well. The company has been increasing the payout for the last 12 years and is only paying 40% of its earnings while raising the forecast for earnings. In our view, Analog Devices shareholders should anticipate another 12 years of increases. 

    The Technical Outlook: Analog Devices Is Moving Higher

    Analog Devices underwent a correction that looks to be over. Price action retreated to the $145 level where a strong bounce occurred and now the market has retested and found support at a higher level. The indicators are also set up well with MACD on the verge of a bullish crossover and stochastic ready to fire a strong bullish signal. Assuming the market follows through on these signals, we see price action moving above the 150-day moving average and retesting the recent highs near $190 if not moving up to set new highs. 

    Analog Devices Raises Its Long-Term Growth Targets


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