Analog Devices (ADI) is a leading supplier of analog and DSP integrated circuits. The company’s April quarter earnings exceeded the Zacks Consensus estimate, driven by particularly strong demand for all major products sold into the industrial and automotive markets.
We expect the strength to continue through 2010, as consumer and computing markets gain further momentum. Cash flow also remains impressive. Although we see competitive pressures and capex cuts in China impacting results near-term, we believe Analog Devices has turned the corner.
ADI shares are trading at 12.7X our estimated earnings for fiscal 2010, compared to 17.5X for the peer group, a significant discount. Consequently, we are upgrading ADI shares from Neutral to Outperform.