Will Analog Devices (ADI) Disappoint This Earnings Season? - Analyst Blog

Analog Devices, Inc. ADI is set to report second-quarter 2014 results on May 20. Last quarter, the company posted 2.1% positive surprise. Let's see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Analog's first-quarter 2014 earnings were above the Zacks Consensus Estimate driven by revenue growth across all product lines coupled with solid expense management. Additionally, total end customer orders improved in the last quarter, especially industrial communications and automotive markets.

However, gross margins contracted in the quarter due to lower utilization rates and an unfavorable mix. On the other hand, operating margin of 29.6% was up 390 basis points from the year-ago quarter.

For the second quarter, management expects revenues in the range of $660 to $680 million. Earnings per share are expected within 54–58 cents, while the Zacks Consensus Estimate is pegged at 56 cents.

Earnings Whispers?

Our proven model does not conclusively show that Analog Deviceswill beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 56 cents. Hence, the difference is 0.00%.

Zacks Rank: Analog Deviceshas a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive Earnings ESP and a Zacks Rank #1, 2 or 3 such as:

Sanderson Farms, Inc. SAFM, with Earnings ESP of +2.44% and a Zacks Rank #1 (Strong Buy).

Ship Finance International Limited SFL, with Earnings ESP of +35.48% and a Zacks Rank #1.

Intuit Inc. INTU, with Earnings ESP of +1.18% and a Zacks Rank #1.