Why Everyone Now Likes Analog Devices Even More

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Analog Devices, Inc. (ADI) reported earnings on Tuesday, but there is more noise and action from analysts than we could have ever expected. The earnings were a beat before items, but the real excitement is stemming from the company raising its dividend and setting a higher stock buyback.

The chipmaker raised its payout by 9%, up to $0.37 per share. This higher rate will generate a 2.85% dividend yield with shares up 1.45% at $51.97. Perhaps more important is that ADI announced a stock buyback expansion of up to $1 billion. This will represent roughly 6% of its float due to the market cap of $16.1 billion.

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Where that buyback starts to get interesting is that mutual funds (including ETFs) and institutions own what appears to be 89%. These percentage of ownership figures are always hard to trust, particularly with the lag time they are calculated on, but this effectively means that 60% or so of the retail-owned float could effectively be taken out of the float.

Earnings in the last quarter came to $0.49 per share off of $628 million in revenue versus a consensus of $0.48 EPS and $629 million  in revenue. Forward quarterly guidance was for earnings of $0.54 to $0.58 per share on revenues of $660 million to $680 million, while the estimate was $0.55 per share and $663 million in revenue.

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It was interesting to see that ADI's consensus analyst stock price target was closer to $50.00, because the stock was up at $51.97 on last look. Now we have seen many analyst calls on Wednesday. These are the calls seen:

  • reiterated Buy and the price target was raised to $60 from $55 at Canaccord Genuity;
  • reiterated outperform with a $55 price target at Credit Suisse;
  • reiterated Outperform and the target was raised to $60 from $58 at Oppenheimer;
  • and reiterated as Buy with the target up to $61 from $54 at Pacific Crest.

Many other analysts maintained the equivalent of their neutral and market perform ratings, but many firms also raised their targets. Barclays, BMO Capital Markets, Deutsche Bank, RBC Capital Markets, and others all raised their price targets.

Analog Devices was up 1.45% at $51.97 on last look, but the stock hit a new 52-week high of $52.38 on the day. Actually, this was the highest price going back to the tech bubble around the year 2000.

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