It's been a good week for Analog Devices, Inc. (NASDAQ:ADI) shareholders, because the company has just released its latest full-year results, and the shares gained 4.5% to US$114. It looks like the results were a bit of a negative overall. While revenues of US$6.0b were in line with analyst predictions, earnings were less than expected, missing estimates by 2.9% to hit US$3.65 per share. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, the current consensus, from the 20 analysts covering Analog Devices, is for revenues of US$5.66b in 2020, which would reflect a small 5.6% reduction in Analog Devices's sales over the past 12 months. Earnings per share are expected to sink 12% to US$3.22 in the same period. In the lead-up to this report, analysts had been modelling revenues of US$6.06b and earnings per share (EPS) of US$3.92 in 2020. From this we can that analyst sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a real cut to earnings per share estimates.
Analysts made no major changes to their price target of US$122, suggesting the downgrades are not expected to have a long-term impact on Analog Devices's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Analog Devices at US$136 per share, while the most bearish prices it at US$98.00. This shows there is still quite a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with the forecast 5.6% revenue decline a notable change from historical growth of 18% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 7.3% annually for the foreseeable future. It's pretty clear that Analog Devices's revenues are expected to perform substantially worse than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. The consensus price target held steady at US$122, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Analog Devices going out to 2022, and you can see them free on our platform here.
It might also be worth considering whether Analog Devices's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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