Stock Analysis

Analog Devices, Inc. (NASDAQ:ADI) Analysts Are Cutting Their Estimates: Here's What You Need To Know

Published
NasdaqGS:ADI
Source: Shutterstock

It's been a good week for Analog Devices, Inc. (NASDAQ:ADI) shareholders, because the company has just released its latest first-quarter results, and the shares gained 2.3% to US$192. Analog Devices reported US$2.5b in revenue, roughly in line with analyst forecasts, although statutory earnings per share (EPS) of US$0.93 beat expectations, being 2.6% higher than what the analysts expected. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

View our latest analysis for Analog Devices

earnings-and-revenue-growth
NasdaqGS:ADI Earnings and Revenue Growth February 23rd 2024

Taking into account the latest results, the 26 analysts covering Analog Devices provided consensus estimates of US$9.13b revenue in 2024, which would reflect a concerning 21% decline over the past 12 months. Statutory earnings per share are forecast to crater 50% to US$2.84 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$9.95b and earnings per share (EPS) of US$3.55 in 2024. The analysts seem less optimistic after the recent results, reducing their revenue forecasts and making a substantial drop in earnings per share numbers.

Despite the cuts to forecast earnings, there was no real change to the US$211 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Analog Devices, with the most bullish analyst valuing it at US$230 and the most bearish at US$185 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that revenue is expected to reverse, with a forecast 27% annualised decline to the end of 2024. That is a notable change from historical growth of 20% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 15% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Analog Devices is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates underperformance compared to the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Analog Devices going out to 2026, and you can see them free on our platform here.

Even so, be aware that Analog Devices is showing 1 warning sign in our investment analysis , you should know about...

Valuation is complex, but we're helping make it simple.

Find out whether Analog Devices is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.