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Analog Devices to benefit from strong growth in businesses, says Baird Research

Automation, robotics and communications to backstop company's growth in years to come

Wireless communications
Analog Devices designs, manufactures and markets analog, mixed-signal and DSP integrated circuits.

Analog Devices Inc (NASDAQ:ADI) should see strong growth because of trends in communications and other segments of its business, a report by Baird Equity Research said.

Senior research analyst Tristan Gerra said in a note to clients that ADI "stands to benefit long term from the secular trends of 5G" in mobile and wireless communications.

"Wireless communications should continue to grow double-digits YoY as 4G networks densify, small cell deployments accelerate, and the transition to 5G...begins," Gerra wrote in a research note. "Wired and wireless revenues both increased double-digits % YoY in F3Q18."

"Analog Devices should be a beneficiary of Industry 4.0 trends, particularly automation/robotics, which is expected to grow 10% annually. Industrial continues to grow but at a slower rate and should normalize to 2x-3x GDP growth," the analyst wrote.

ADI shares finished on Wednesday up 2.09% at US$97.92. 

ADI's recent fiscal third quarter 2018 earnings per share was at US$1.53, which Gerra noted was above the high end of the guidance of US$1.38 to US$1.52. Last year, the earnings stood at US$1.26. Revenue of US$1.57bn is above Baird's estimate of US$1.524bn and tops the year-ago level of US$1.43bn.

"The midpoint of F4Q18 pro forma EPS guidance (including stock compensation) of US$1.46-US$1.58 is above our previous estimate of US$1.47 and equal to consensus of US$1.52," Gerra wrote.

"Management expects mid-single-digit percentage growth in automotive for the next two years but to tick upward meaningfully around F2020, particularly driven by growth in the battery management business and share gains in high-performance power sockets," it added.

Consumer revenue should continue to decline until an expected F3Q19, with the analyst expecting it to be down 15-20% for F2019. Gross margin should remain flattish going forward, Gerra said.

Analog Devices is a company that designs, manufactures, and markets high-performance analog, mixed-signal, and digital signal processing (DSP) integrated circuits used in signal processing applications in diversified end markets. Analog Devices is based in Norwood, Massachusetts.

Quick facts: Analog Devices, Inc.

Price: 112.94 USD

NYSE:ADI
Market: NYSE
Market Cap: $41.63 billion
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