Analog Devices stock rose 5.8%

Shares of semiconductor company Analog Devices (ADI) rose 5.8% on June 10 to close trading at $106.66 per share. Investment bank Goldman Sachs (GS) upgraded ADI to a “buy” from a “sell.” Goldman Sachs analyst Toshiya Hari also increased the 12-month target price for ADI from $101 to $114.

In an investor note, Hari stated, “First and foremost, we acknowledge that our Sell thesis on the stock – which was predicated on our guarded view towards the analog semiconductor cycle and relatively stretched valuation – has not worked.”

According to Hari, the downward semiconductor cycle is coming to an end, and Analog Devices now has multiple revenue drivers.

ADI has been volatile

ADI has been volatile in the last few months. Though the stock has gained 24.8% year-to-date, its shares fell close to 17.0% in May. ADI generates ~20.0% of its sales from China and is likely to be affected by the ongoing trade war.

The government ban on Chinese telecommunications and hardware giant Huawei might also affect sales for Analog Devices. Analog Devices’ sales are expected to fall 3.0% in 2019, rise 3.3% to $6.53 billion in 2020, and rise 7.3% in 2021.

ADI stock is trading at a forward PE multiple of 17.7x. In comparison, its EPS are expected to fall 7.9% this year and rise 9.9% in 2020. Analog Devices stock looks overvalued considering its PE multiple.

Of the 26 analysts covering ADI, 16 have given it “buys,” and ten have given it “holds.” There are no “sell” recommendations on the stock. Analysts have given it a 12-month average target price of $117.61, indicating that the stock has a potential upside of 10.4% from its current price.

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