Is this semiconductor name a buy?

It’s time to take a look at another semiconductor company. Here is the break down on $ADI, otherwise known as Analog Devices.


Current price: $162.07

52/Wk High: $166.32

52/Wk Low: $110.47


Market Cap: $59.8 Billion

Dividend: $2.76 / 1.70% Yield


Read below for the break down!


Analog Devices ($ADI) is a popular semiconductor company that was founded in 1965. Core focuses of the company include Amplifiers, Data Converters, Power RF & Microwaves, MEMS, and more.


Breaking down the companies spread amongst the semiconductor industry, 53% of the company’s revenues are based in the industrials. Furthermore, 21% of revenues are based in the communications industry, 14% in the automotive industry, and finally 11% based in the consumer area.


Analog Devices is led by CEO Vincent Roche. Roche started with ADI in 1988 and had led the company through years of growth, becoming the company’s chief executive officer in 2013.


In recent news, Analog Devices announced the acquisition of Maxim Integrated in a major $68 billion all stock deal. Maxim is a major designer and manufacturer of mixed-signal integrated circuits and more within the semiconductor industry.


Once finalized, ADI shareholders will own 69% of the overall combined company, while Maxim shareholders will own just 31%. In the most recent quarterly report, leadership noted that approval for the deal has been reached amongst the European Union, Korea, Taiwan, Japan, and more.


Rounding out the merger details, the Q2 report noted that the Maxim Integrated deal is on track, and expected to close within the summer of 2021.


Digging into the numbers, Analog Devices delivered a Q2 2021 beat with an EPS of $1.54, significantly better than the analyst’s consensus EPS estimate of $1.45. On a year-over-year basis, EPS improved by 42.59%.



Shifting into revenues, total revenue improved by 26% year-over-year to $1.661 billion. For reference, the Q2 2020 revenues level was $1.317 billion.



Breaking down revenues by segment, ADI delivered growth amongst most segments.


Industrial: $972.177 M (Up 36% YoY)

Communications: $276.960 M (Flat)

Automotive: $257.586 M (Up 42% YoY)

Consumer: $154.684 M (Up 8% YoY)


On the margins front, gross margin improved by 410 basis points year-over-year to 68.4%. For reference, the Q2 2020 gross margins level was 64.3%.


Operating margin improved as well, with Q2 2021 operating margin jumping by a solid 520 basis points year-over-year to 31.3%. Do note, the Q2 2020 operating margin was 26.1%.


Income continued to improve as well with operating income jumping by 51% year-over-year to a stronger $520 million. Looking back, the Q2 2020 operating income level was $344 million.


While revenues and EPS continued to improve, net cash provided by operating activities declined to $736 million from $2.394 billion. Furthermore, free cash flow declined from $2.217 billion to $677 million in Q2 2021.


Management was upbeat.


“ADI delivered record quarterly results that exceeded the high end of our outlook, reflecting the insatiable demand for our products and disciplined operational execution,” CEO Vincent Roche said.


Looking to the future, leadership expects Q3 2021 revenues to total roughly $1.7 billion, give or take $70 million. Rounding out guidance, management is expecting operating margin to land around 32.9% in the third quarter.


Shifting into the balance sheet the numbers are solid.


Total Debt: $5.148 Billion


Total Liabilities: $9.421 Billion


Total Assets: $21.588 Billion


Cash & Short Term Inv: $1.305 Billion


On a valuation basis, ADI does trade at a premium.


Price to Earnings: 38.68x


Forward Price to Earnings: 23.29x


Price to Sales: 9.56x


Price to Book: 4.91x


Price to Cash Flow: 24.36x



Management has been effective.


Return on Equity: 13.14%


Return on Assets: 7.27%


Return on Invested Capital: 8.09%


Given the numbers the analysts are bullish with a mean price target of $179.11/share, representing a 10.51% upside.


The high price target is $190.00/share, representing a 17.23% upside, while the low price target is $165.00/share, representing a 1.81% gain.


The big money is quite involved as well, with 94.96% of Analog Devices being owned by institutions. Top holders include The Vanguard Group, JP Morgan Asset Management, and BlackRock Institutional Trust.


On a technical basis, Analog Devices is solid. According to the six-month charts the MACD is moving with significant upside momentum within a range of 2.59 down to 1.54.


The six-month charts are also indicating an RSI of 58.38 and CCI of 64.49, both of which are on the high end.



In short, Analog Devices ($ADI) is a solid company with increasing demand, a consistent management team, strong revenues growth, and a solid balance sheet.


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Disclaimer: This is not direct financial advice, simply an opinion based on independent research.