KeyBanc, Morgan Stanley Break Down Analog Devices

Analog Devices, Inc. ADI reported Wednesday morning fiscal third-quarter results, which came in better than management expected although against previously reduced guidance. Here is a summary of how two of the Street's top analysts reacted to the print.

The Analysts

Morgan Stanley analyst Craig Hettenbach maintains an Equal-weight rating on Analog Devices with a price target lifted from $97 to $100.

KeyBanc Capital Markets analyst John Vinh maintains at Sector Weight.

Morgan Stanley: Feeling Some Pressure

Analog Devices faced a higher bar in its earnings report compared to some of its peers due to elevated investor sentiment in the name, Hettenbach wrote in a note. Results were mixed with the BMS business for EVs growing year-over-year, but auto revenue was down 9% due to an overall decline in global auto production and a negative impact from inventory reductions.

The Industrial business also declined by 4% year-over-year although the analyst this is a "milder" drawdown versus its peer. Also, the Comm business still grew by 7% even though the company is not banned from selling 5G related technology to China's Huawei.

Finally, Distribution channel inventory moved higher from around 7.7 weeks last quarter to eight weeks which likely signals weaker resales. The eight weeks is at the high end of management's target range and poses a risk if business does not rebound and distributors reduce their inventory.

KeyBanc: Softer Outlook

Analog's management highlighted growing macro headwinds from the U.S.-China trade war and it doesn't expect a resolution to come by the end of the summer, Vinh wrote in a note. Customer confidence is also softer today than it was just last quarter.

However, Analog Devices also guided to total revenue growth in fiscal 2020 despite several headwinds ahead. The analyst said the revenue growth is likely to come from its strong positioning in Communications as the company satisfies 5G demand from non-Huawei clients.

Price Action

Shares of Analog Devices were trading around $109.05 Thursday afternoon.

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