In this series, we discussed how Analog Devices (ADI) reported record high earnings in fiscal 4Q16 due to strong demand from Apple (AAPL) and the seasonal demand in its business-to-business segments. However, the seasonal weakness is expected to hurt its fiscal 1Q17 revenues, though profit margins are likely to be less affected by the company’s inventory management.
Despite seasonalities, ADI reported a YoY (year-over-year) growth which raised optimism among investors. Moreover, its announcement to acquire Linear Technology (LLTC) boosted ADI’s shares.
In calendar 2016, ADI’s stock price rose by 45.3%, outperforming its rivals Texas Instruments (TXN) and Maxim Integrated (MXIM), which rose 44.9% and 19.3%, respectively. The Wall Street analysts are more optimistic about ADI and have given it a “strong buy” recommendation. They have given “hold” recommendations for Texas Instruments and Maxim Integrated.
ADI has an average price target of $80, and so it’s currently trading at a discount of 4.6%. The company may achieve its average price target if it reports better-than-expected earnings on February 15, 2017. The company could also achieve the bullish target of $93 over time if it successfully integrates Linear Technology by fiscal 2Q17 and secures a big order in the industrial or automotive space.
The stock price could fall if the acquisition is delayed or canceled due to some reason. However, the probability of ADI canceling the deal is very small as it has already secured a term loan to fund the deal.
TXN has an average price target of $84, and so it’s currently trading at a discount of 9.3%. The stock could reach this target or even beat it if it announces an acquisition. Some analysts believe that Maxim would be a good acquisition target for TXN.
MXIM has an average price target of $46, and so it’s currently trading at a discount of 1.0%. The company announced that it was open to being acquired in 2015—and it still is. This indicates that the company is not confident about its future growth opportunities. Hence, the stock is unlikely to show any major movements unless it receives an acquisition bid.
Overall, investors and analysts anticipate that ADI will report strong growth in the future. But it remains to be seen how the Linear Technology acquisition will unfold and whether ADI manages to achieve the desired outcome from this deal.