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Why Analog Devices Stock Fell, Despite Strong Earnings

Story Highlights

Despite the warning over economic uncertainty, TipRanks’ analyst rating consensus shows that Wall Street professionals remain bullish on Analog Devices stock.

Analog Devices (ADI) delivered Fiscal Q3-2022 earnings results that both increased from the year-ago quarter and exceeded Wall Street expectations. The company also issued an upbeat outlook for Q4. Despite its strong earnings, the stock price has fallen, probably because of management’s comments about slowing orders.

Massachusetts-based Analog Devices is a semiconductor company that makes signal processing and power management chips. Its competitors include Texas Instruments (TXN).

Analog Devices’ Management Commentary Spooks Investors 

Right after the earnings release, Analog Devices stock fell almost 5%, once investors heard that economic uncertainty was starting to affect orders for the company’s products. 

“The macro backdrop is dynamic and it’s clear that we’re at an inflection point. Economic conditions are beginning to impact demand with orders showing — orders slowing later in the quarter and cancellations increasing slightly,” cautioned Analog Devices CEO Vincent Roche.

In a comment of hope, though, the executive said, “While economic uncertainty is beginning to impact bookings, demand continues to outpace supply, resulting in higher backlog, paving the way for a strong finish to a banner year.”

Earnings Snapshot

The Analog Devices earnings report is for the three months ended July 30. Revenue increased 77% from the year-ago quarter to $3.11 billion and surpassed the consensus estimate of $3.06 billion. Adjusted EPS jumped 47% from the year-ago quarter to $2.52 and beat the consensus estimate of $2.43. 

The company returned $1.3 billion to shareholders through share repurchases and dividends during the quarter. Analog Devices has scheduled its next dividend distribution for September 8 to shareholders of record on August 30. The company is offering a dividend of $0.76 per share

Analog Devices anticipates Q4 adjusted EPS of about $2.57 on revenue of about $3.15 billion. The internal projections are above Wall Street estimates for adjusted EPS of $2.50 on revenue of $3.09 billion.

Is Analog Devices a Good Stock?

Although ADI stock is down about 3% year-to-date, it has fared better than many chip stocks. Wall Street experts remain bullish on the stock. According to TipRanks’ analyst rating consensus, Analog Devices stock is a Moderate Buy based on seven Buys and three Holds. The average ADI stock forecast of $188.50 implies 11% upside potential.

Analog Devices is a favorite of elite investors. TipRanks’ Hedge Fund Trading Activity tool shows that confidence in ADI is currently Very Positive. Some 23 hedge funds increased their cumulative holdings of the stock by 2.5 million shares in the last quarter.

Final Thoughts

In addition to offering an above average dividend yield of 1.61%, Analog Devices has also been paying increasing annual dividends over the past 13 years. While macroeconomic headwinds may be a concern, Analog Devices’ business has bright long-term prospects considering the expanding application of its products. 

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