Analog Devices (NASDAQ: ADI) did not have a robust quarter in Q4 2024. Still, its results and guidance align with the industry outlook, which is a reversion to growth following years of inventory correction. The correction was caused by pandemic-era spending and supply-chain log jams, resulting in many OEMs overordering to combat the issues. Today's story is that inventory levels have normalized, demand is picking up across all end markets for industrial-purpose semiconductor products, and Analog Devices is well-positioned to benefit from a budding multi-year semiconductor upcycle.
Analog Devices Is Cautiously Optimistic for 2025
Analog Devices' revenue declined in Q4 and for the fiscal year 2024, but the trends are positive and point to growth in 2025. The $2.44 billion in Q4 revenue is down 10% year over year but outpaced the consensus estimate, with the contraction slowing compared to previous quarters. The company reports sequential growth in all end semiconductor markets, with a notable shoutout for automotive. Segmentally, Industrial was the weakest, declining by 21% year-over-year, followed by an 18% decline in Communications and a slim 2% contraction in Automotive. The Consumer group is the single area of Q4 strength, growing by 31% to account for 11% of the net.
The margin news is mixed with gross margin contracting and offset by improved SG&A expenses. The net result is that the GAAP margin was relatively steady compared to last year, while the adjusted contracted by 360 basis points but less than expected. The adjusted earnings of $1.67 are down more than 15%, but they are nearly 200 basis points better than expected and compounded by guidance.
Guidance is equally mixed but aligns with the outlook for 2025 growth, with the Q1 contraction narrowing another 400 basis points and the full-year outlook robust. In the words of CFO Richard Pucchio, the company is cautiously optimistic that 2025 will be a strong growth year. The analysts forecast revenue to grow by 10% and for leveraged results on the bottom line.
Operational Quality Helps Sustain Analog Devices Uptrend
Operational quality is among the factors supporting the uptrend in Analog Devices stock price. The highlights from Q3 include improving cash flow and free cash despite the margin contraction, the cash position nearly doubling, and steady shareholder equity. The cash flow and balance sheet allow for healthy capital returns and capital return growth, including dividends and share repurchases.
The dividend yield of 1.6% is above the broad market average, with the shares trading near record levels, and is expected to grow annually. With 20 years of consecutive increases to its credit, the company is on track for inclusion in the Dividend Aristocrat index before the end of the decade. Repurchases are robust, offsetting dilution and reducing the count by about 1.4% in F2024.
Analog Devices Analysts Shift Gears in 2024
The critical takeaway from the analysts' data for ADI in 2024 is that the sentiment trend shifted from negative to positive mid-year, leading this market higher. The consensus estimate is $252, well above the current high, and the revision trend suggests an even higher price point is likely. The latest estimates show that this stock trading is in the $285 range, which adds another 15% to the consensus target.
Following the release, the technical action in ADI shares is bullish. The market is up more than 5% in premarket trading and near record highs. The critical resistance point is near $240 and may be broken soon. In that scenario, the market can easily rise to the $252 level, and a move to the analysts' high-end range is possible. The technical targets implied by a move to new highs include a $40 advance from the critical resistance point.
