Analog Devices Is One Of Morgan Stanley's Top Overweight Picks

There is upside to the estimates for Analog Devices, Inc. ADI for the next couple of quarters due to “strength in broad-based markets, iPhone upside, and tight opex controls,” Morgan Stanley's Craig Hettenbach said in a report. He reiterated an Overweight rating on the company, with a price target of $78.

Hettenbach mentioned that Analog Devices was among “our top picks” heading into 2017, citing the expected deal with Linear Technology Corporation LLTC.

Why A Top Pick?

The Linear Technology deal is expected to be 20–25 percent accretive and “should create one of the best business models in the S&P 500,” Hettenbach stated. Apart from this deal, there is “an upward bias to EPS” even prior to the deal close, given Analog Devices’ stringent control of opex and healthy business conditions.

The read-through from the company’s semi and distribution earnings reports for Q3, as well as guidance for Q4, are positive, “reflecting seasonal/stable demand and benign changes in inventory and lead times,” the analyst said.

Although there are uncertainties around Apple Inc. AAPL's iPhone sell-through into December and 2017, data points from the supply chain indicate upside for Analog Devices’ consumer business in the October and January quarters, Hettenbach added.

At last check, Analog Devices was flat on the day at $68.14.