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Will Analog Devices (ADI) Disappoint This Earnings Season?

Zacks Equity Research

Analog Devices, Inc. (ADI) is set to report first-quarter 2014 results on Feb 18. Last quarter, it posted 6.9% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Analog’s fourth-quarter 2013 earnings were above the Zacks Consensus Estimate driven by strong revenue growth coupled with better gross margins and solid expense management. Additionally, revenues were up sequentially driven by strength in the automotive segment.

Gross margins expanded in the quarter attributable to higher factory utilization and lower manufacturing costs. However, operating margin of 29.5% was down 150 basis points from the year-ago quarter.

Analog provided a weak outlook for the first quarter, with revenues expected to decrease in the range of -5% to -10% sequentially. The company estimates gross margin in the range of 64.0–65%, tax rate to be approximately 13% and earnings per share in the range of 44 –52 cents.

Earnings Whispers?

Our proven model does not conclusively show that Analog Deviceswill beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 48 cents. Hence, the difference is 0.00%.

Zacks Rank: Analog Devices has a Zacks Rank #3 (Hold) which, when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive earnings ESP and a Zacks Rank #1, 2 or 3 such as:

Westlake Chemical Corp. (WLK), with Earnings ESP of +4.50% and a Zacks Rank #1 (Strong Buy).

Ship Finance International Limited (SFL), with Earnings ESP of +52.63% and a Zacks Rank #1

ProAssurance Corporation (PRA), with Earnings ESP of +13.59% and a Zacks Rank #1

Read the Full Research Report on WLK
Read the Full Research Report on PRA
Read the Full Research Report on ADI
Read the Full Research Report on SFL


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