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Analog Devices (ADI) Down 6.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Reliance Steel (RS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

A month has gone by since the last earnings report for Analog Devices (ADI). Shares have lost about 6.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Analog Devices due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Analog Devices Beats Q4 Earnings & Revenue Estimates

Analog Devices Inc. reported fourth-quarter fiscal 2018 adjusted earnings of $1.55 per share, beating the Zacks Consensus Estimate of $1.52. Moreover, the bottom line increased 6.9% year over year and 1.3% sequentially.

Revenues of $1.6 billion topped the consensus mark of $1.57 billion. Moreover, the top line improved 3.6% year over year and 1.5% sequentially.

The strong growth was driven by robust performance from industrial and communications end-markets.

Revenues by End Markets

Industrial revenues (49% of the total sales) soared 10% year over year to $788.4 million.

Communications revenues (22% of the total sales) grew 29% year over year and 8% sequentially to $352.2 million.

Automotive revenues (15% of the total sales) jumped 2% from the year-ago quarter but declined 1% from the fiscal third quarter to $245.4 million.

Consumer revenues (13% of the total sales) declined 33% year over year but increased 1% sequentially to $210.7 million.

Operating Details

Non-GAAP gross margin expanded 30 basis points (bps) on a year-over-year basis to 71.2%.

Adjusted operating expenses, as a percentage of revenues, expanded 10 bps from the year-ago quarter but declined 20 bps sequentially to 28.3%.

Non-GAAP operating margin expanded 40 bps on a year-over-year basis and 30 bps sequentially to 43%.

Balance Sheet & Cash Flow

Analog Devices exited the fiscal fourth quarter with cash and cash equivalents of approximately $816.6 million, up from $772.6 million at the end of fiscal third quarter.

Long-term debt was approximately $6.3 billion, down from $6.5 billion at fiscal third quarter-end.

Net cash provided by operationswas $714.4 million, up from $620.7 million reported in the fiscal third quarter.

In addition, the company returned $364 million to its shareholders through dividends and share repurchases.

Guidance

For the first quarter of fiscal 2019, Analog Devices expects revenues to be $1.51 billion (+/- $50 million). Non-GAAP gross margins are expected to be approximately 70.8% (+/- 20 bp).

Interest and other expenses of the company are projected at approximately $56 million.

Non-GAAP earnings are expected to be$1.28 (+/- $0.07) per share. 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Analog Devices has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Analog Devices has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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