Goldman Sachs Updates Semiconductors: Upgrades Analog, Removes Avago from CL

In a report published Sunday, Goldman Sachs analyst James Covello updated the ratings on technology semiconductors

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. Goldman Sachs upgraded Analog Devices from Sell to Neutral and raised the price target from $41.00 to $50.00. Covello increased the price target on Buy-rated Avago from $66.00 to $70.00 but removed the company from Goldman's Conviction List due to upside in other names.

The analyst noted that Analog Devices has “lagged” behind peers and the broader semi group over the past year-to-date, up 4% versus the 20% gain by peers and 8% yield by SOX. Covello reported that although shares of Analog Devices are trading at a premium on normalized earnings, the company is currently trading at a discount to its analog peer group. Goldman Sachs further remarked on the company's “improving” fundamentals. Covello commented that approximately 66% of sales are coming from comms, semi test, and industrials. The analyst wrote, “We highlight recent positive datapoints from back-end semi equipment companies, better-than-expected carrier capex guidance and robust industrial fundamentals, including strong data from the ISM PMI, Architectural Billings Index, and Dodge Momentum Index.”

James Covello remarked on two drivers of outperformance on Avago. The analyst reported that Avago is “well-positioned” to benefit from the LTE transition and expects the impending LSI acquisition to be “significantly accretive” according to Goldman Sachs pro forma model. Goldman Sachs removed Avago from its Conviction List due to upside in other TMT coverage universe names. Covello reported the gains on shares, remarking on the company's 34% gain since being added to the list on October 18, 2013 versus SOX which is up 15% and S&P 500, up 7%. Avago is up 79% over the past twelve months.

Shares of Analog Devices closed at $52.92 on Friday. Analog has traded as high as $53.84 on Monday, up 1.738%. On Friday, Avago closed at $61.80. Shares have traded as low as $58.83 on Monday, down 5.048%.