By Sam Boughedda
Citi analysts told investors in a research note Wednesday that Analog Devices (NASDAQ:ADI) remains the firm's top pick, reiterating a Buy rating and $195 price target.
The analysts said the company should guide lower when it reports its fiscal fourth quarter results on Tuesday, 22 November, before the open, but not as bad as peers.
"We expect the company to report F4Q22 results in line with consensus but we expect ADI to guide January quarter down sequentially, similar to peers as the downturn gets worse. We reiterate our Buy rating on ADI given our belief it will outperform in the downturn and its defensive nature," explained the analysts.
For its latest quarter, Citi sees Analog Devices reporting sales of $3.15 billion, up 1% QoQ, in line with consensus estimates as the firm believes the company's previous guidance was conservative. Citi's fourth-quarter EPS estimate for ADI is $2.56, roughly in line with consensus expectations.
However, they see ADI guiding fiscal first quarter 2023 sales down 5% QoQ to $3B, below the consensus of $3.04B, "driven by sequential declines in the Industrial and Consumer end markets (combined 63% of sales), similar to peers."
"We believe there could be some downside to our and Consensus ADI C23 estimates given the downturn. However, we believe there is less downside than peers as our C23 estimates are roughly 16% below consensus for other analog names and our C23 EPS estimate of $9.78 for ADI is roughly in line with consensus," added the analysts. "We believe ADI can maintain its gross margins above 70% even if revenue declines 15%, driven by cost synergies from the Maxim acquisition and operational excellence. We would note ADI has the highest margins in the group."