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BofA: Analog Devices A Potential Big Winner From 5G

Jayson Derrick

Analog Devices, Inc. (NASDAQ: ADI) boasts among some of the most attractive exposure to the upcoming 5G cycle, which should help lift the stock's multiple, according to Bank of America Merrill Lynch. 

The Analyst

Analyst Vivek Arya upgraded Analog Devices from Neutral to Buy with a price target lifted from $96 to $125.

The Thesis

Analog Devices' expertise in radio frequency and microwave technology makes it a key component in building out 5G mobile networks over the next decade, Arya said in the Monday upgrade note.

The company's wireless radio technology will be required to enable a tenfold increase in download speed and could be used two to three times as much as it is in 3G and 4G networks. 

Among the entire communications end market, 24 percent of Analog Devices' total sales come from the communication sector, which is twice the median peer average exposure of 12 percent.

Analog Devices managed to grow its communication business at a 12.3-percent compounded annual growth rate, which is nearly three times the 4.2-percent peer median growth rate, Arya said. 

Investors have yet to fully appreciate Analog Devices' potential leadership position in 5G over the longer-term, the analyst said. 

Over the near-term, the company's 1.9-percent dividend yield could improve to the 2-3-percent range given best-in-class free cash flow, he said. 

Price Action

Analog Devices shares were up 0.72 percent at $101.46 at the time of publication Monday. 

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Latest Ratings for ADI

Date Firm Action From To
Feb 2019 Bank of America Upgrades Neutral Buy
Jan 2019 RBC Capital Downgrades Outperform Sector Perform
Dec 2018 Morgan Stanley Downgrades Overweight Equal-Weight

View More Analyst Ratings for ADI
View the Latest Analyst Ratings

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