Here’s what you need to know beyond why Analog Devices, Inc. (ADI) is a popular stock

Analog devices (ADI) has been one of the most searched stocks on Zacks.com lately. It is therefore worth taking a look at some facts that may affect share prices in the near future.

Shares of this semiconductor maker have gained +0.8% over the past month compared to the Zacks S&P 500 composite’s change of -3.5%. The Zacks Semiconductor – Analog and Mixed industry, which includes Analog Devices, has gained 1.7% in the period. Now the key question is: where could the company’s shares be heading in the near future?

While media reports or rumors about significant changes in a company’s business prospects usually cause a change in the trend of its stock and lead to an immediate change in price, there are always some fundamental factors that ultimately influence the decision to buy and hold.

Earnings estimate revisions

Rather than focusing on anything else, at Zacks we prioritize assessing company earnings estimate revisions. This is because we believe the fair value of a company’s stock is determined by the present value of its future earnings streams.

We essentially look at how sell-side analysts of a stock are revising their earnings estimates to reflect the impact of recent business trends. And if the company’s earnings estimates increase, the fair value of its stock will increase. A higher fair value than the current market price increases investor interest in purchasing the stock, which leads to an increase in its price. That’s why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements.

Analog Devices is expected to report earnings per share of $2.58 for the current quarter, which would represent a year-over-year change of +49.1%. Over the past 30 days, the Zacks Consensus Estimate has moved +0.1%.

The consensus earnings estimate for the current fiscal year of $9.42 represents a change of +45.8% from the prior year. These estimates have not changed over the past 30 days.

The consensus earnings estimate for the next fiscal year of $9.52 represents a +1% change from what Analog Devices was expected to report a year ago. Over the past month, the estimate has changed by -0.2%.

Our proprietary Zacks Rank, a stock rating tool with a robust, outside-audited track record, provides a clearer picture of a stock’s near-term direction by effectively harnessing the power of earnings estimate revisions. Due to the magnitude of the recent change in consensus estimates, as well as three other earnings estimate factors, Analog Devices earns a Zacks Rank #3 (Hold).

The chart below shows the evolution of the company’s 12-month consensus EPS estimate:

12-month EPS

Revenue growth forecast

While earnings growth is probably the best indicator of a company’s financial health, nothing will happen if the company can’t grow its revenues. After all, it is almost impossible for a company to increase its profits over a long period of time without increasing its revenues. Therefore, it is important to know the potential revenue growth of the company.

For Analog Devices, the current quarter sales consensus estimate of $3.16 billion indicates a year-over-year change of +35.2%. Current and next fiscal year estimates of $11.93 billion and $12.31 billion represent +63% and +3.2% changes, respectively.

Recently reported results and surprise history

In the most recent quarter, Analog Devices reported revenue of $3.11 billion, representing a year-over-year change of +76.8%. EPS of $2.52 in the same period compared to $1.72 a year ago.

Compared to the Zacks Consensus Estimate of $3.06 billion, reported earnings represent a surprise of +1.71%. The EPS surprise was +3.7%.

The company has beaten consensus EPS estimates in each of the four consecutive quarters. During this period, the company has consistently exceeded consensus revenue estimates.

Quotation

No investment decision will be effective without taking stock valuation into account. Whether the current share price accurately reflects the true value of a company’s core business and growth prospects is an important determinant of its future price performance.

Comparing the present value of a company’s valuation multiples, such as its price-to-earnings ratio (P/E), price-to-sales ratio (P/S) and price-to-cash flow (P/CF), with its own historical values ​​helps determine whether its the shares are fairly valued, overvalued or undervalued, and comparing the company with its competitors in terms of these parameters gives a good sense of how reasonable its share price is.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to rate stocks from A to F (An is better than B; B is better than C; etc. .) is very helpful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Analog Devices has a C rating in this regard, meaning it ranks on par with its competitors. Click here to see the values ​​of some of the valuation metrics that influenced this rating.

Bottom line

The facts discussed here and much more on Zacks.com can help you determine whether the analog hype is worth paying attention to. However, the Zacks Rank of #3 suggests that it could outperform the broader market in the near future.

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