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Why Is Analog Devices (ADI) Down 3.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Analog Devices (ADI). Shares have lost about 3.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Analog Devices due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Analog Devices Beats Q1 Earnings & Revenue Estimates

Analog Devices reported first-quarter fiscal 2023 adjusted earnings of $2.75 per share, beating the Zacks Consensus Estimate by 6.2%. The bottom line rose 42% from the year-ago fiscal quarter’s reported figure.

Revenues of $3.25 billion surpassed the Zacks Consensus Estimate of $3.14 billion. The top line improved by 21% from the year-ago fiscal quarter’s reported figure.

The strong performance delivered by Analog Devices across the industrial, automotive and communications markets drove the top line.

Revenues by End Markets

Industrial: Analog Devices generated revenues of $1.69 billion (accounting for 52% of the total revenues), which grew 26% year over year.

Communications: Revenues from the market were $487.99 million (15% of revenues), increasing 18% from the year-ago fiscal quarter’s reported figure.

Automotive: Revenues from the market summed up to $718.2 million (22% of revenues), up 29% from the year-ago fiscal quarter’s level.

Consumer: The market generated revenues of $353.3 million (11% of revenues), reflecting a 5% decline from the year-ago fiscal quarter’s reported figure.

Operating Details

The adjusted gross margin expanded 170 basis points (bps) from the year-ago fiscal quarter’s level to 73.6%.

Adjusted operating expenses were $732.9 million, up 4.3% from the year-ago fiscal quarter’s level. As a percentage of revenues, adjusted operating expenses were 22.6%, contracting 360 bps year over year.

The adjusted operating margin expanded 530 bps on a year-over-year basis to 51.1% in the reported quarter.

Balance Sheet & Cash Flow

As of Jan 28, 2023, cash and cash equivalents were $1.67 billion, up from $1.47 billion as of Oct 29, 2022.

Long-term debt was $6.54 billion at the end of the fiscal first quarter compared with $6.55 billion at the end of the fiscal fourth quarter.

Net cash provided by operations was $1.41 million in the reported quarter, up from $1.15 billion in the prior fiscal quarter.

ADI generated $1.23 billion of free cash flow in the fiscal first quarter.

Additionally, Analog Devices returned $1.04 billion to its shareholders in the fiscal first quarter, of which dividend payments accounted for $385 million and repurchased shares amounted to $655 million.

Guidance

For second-quarter fiscal 2023, ADI expects revenues of $3.20 billion (+/- $100 million).

Non-GAAP earnings are expected to be $2.75 (+/- $0.10) per share.

Analog Devices anticipates non-GAAP operating margins of 51% (+/- 70 bps).

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How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 14.09% due to these changes.

VGM Scores

Currently, Analog Devices has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Analog Devices has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Analog Devices is part of the Zacks Semiconductor - Analog and Mixed industry. Over the past month, M/A-Com (MTSI), a stock from the same industry, has gained 3.6%. The company reported its results for the quarter ended December 2022 more than a month ago.

M/A-Com reported revenues of $180.1 million in the last reported quarter, representing a year-over-year change of +12.8%. EPS of $0.81 for the same period compares with $0.64 a year ago.

M/A-Com is expected to post earnings of $0.77 per share for the current quarter, representing a year-over-year change of +13.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.8%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for M/A-Com. Also, the stock has a VGM Score of D.

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