Analog Devices Is Ready To Scale New Highs Despite Tech Wreck

Not All Tech Is The Same, Analog Devices Moves Higher 

While the broader tech sector is collapsing under the weight of inflation and the expectation for higher interest rates Analog Devices (NASDAQ: ADI) is quietly setting new records. The company has proven that demand for integrated circuit technology is still high and growing which is no recipe for lower share prices. The key takeaway from this report, however, is the company’s dividend is not only safe but can be expected to grow over the coming year. The stock pays out about 1.85% with shares trading at $164 which isn’t high for stock in general but very high among tech stocks and it is growing at a double-digit CAGR. 

“ADI delivered its fifth consecutive quarter of record revenue, illustrating the unprecedented demand for our technologies and our ability to increase output in a challenging supply backdrop. Top line strength combined with successful synergy execution enabled adjusted gross margin, operating margin and EPS to achieve new highs,” said Vincent Roche, CEO and Chair. “Despite increasing geopolitical uncertainty and ongoing supply chain disruptions, we enter the second half from a position of strength with increased capacity and continued bookings momentum.”

Analog Devices Has Record-Setting Quarter 

Analog Devices, Inc’s Q2 results lived up to the expectations set last year when supply chain issues pointed to a surge in demand for integrated circuits and components, among other manufacturing needs. The company reported $2.97 billion in consolidated net revenue for a gain of 78.9% over last year. What’s more stunning is the revenue beat the consensus by 460 basis points as well with strength in all end markets. Sales in all end markets are up double-digits from last year with sales in all B2B markets up double-digits on a sequential basis as well. 

There is some mixed news in regards to the margin but it is ultimately all bullish. The GAAP margin contracted at the gross and operating levels but this is due to acquisition-related expenses and other growth initiatives. On an adjusted basis, the gross margin expanded by 330 basis points and the operating margin by 860 basis points to set company records. On the bottom line, the GAAP EPS of $1.49 is up only 31% compared to the near 80% gain in revenue but adjusted earnings are much better. On an adjusted basis the $2.40 in EPS is up 56% from last year and beat the Marketbeat.com consensus by $0.29. 

Analog Devices Returns Capital To Shareholders 

Analog Devices is not only a solid dividend payer but also repurchases shares. The company upped it buyback activity over the last quarter as well buying just over $775 million worth of shares during the period. Total capital returns including the dividend were worth just over $1.17 billion for the quarter and were paid almost entirely from free cash flow. Based on the history of payments, the balance sheet, and the outlook for revenue and earnings we see no reason why the company won’t extend the streak of distribution increases to 13, 14, and 15 years at the current CAGR of 10% while buying back shares. 

The Technical Outlook: Analog Devices Is Bottoming 

Analog Devices share price has been bottoming over the past few months and might be on the verge of reversing. If price action can continue with the upward movement and gain the upper side of the $165 level we see it moving up to retest the recent highs near $190. If the market can set a new all-time high and hold it, we might see this stock trend higher into the end of the year. If not, we expect to see ADI move sideways within the established range until there is a change in the broad economic outlook.