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SunTrust Analyst Loves Apple Supplier Analog Devices

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SunTrust analyst William Stein and his team reiterated a Buy rating and $61.00 price target on Analog Devices, Inc. (NASDAQ: ADI) following its latest earnings. The analysts cited two central investment considerations, which they expect to resolve constructively over the medium term:

  • Whether the company will stabilize its sales at top customer Apple Inc. (NASDAQ: AAPL).
  • Whether it will continue to transition to a financially levered company.

Regarding the first issue, the report pointed out that companies like Analog Devices, which "pursue the challenge of revenue growth with short-cycle and volatile consumer end markets like handsets can retain growth and smooth volatility through end market, customer, and product diversification, and aggressive pursuit of new content." While they acknowledge they do not have any direct knowledge of the company's pipeline of design activity, they highlighted an example of new design activity: a dual-lens camera driver.

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The firm estimates sales to Apple will surge sequentially in the April quarter and will continue to grow year-over-year in January 2017.

In relation to the leverage issue, Stein expects the company to "eventually transition to a financially levered position, significantly benefiting equity," continuing with the trend seen so far.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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