Analog Devices Powers Past Estimates, But Shares Cool As Q2 Beat Masks Margin Pressure

Wall Street analysts rerated Analog Devices, Inc ADI after reporting fiscal second-quarter results on Thursday.

The company’s quarterly revenue increased 22% to $2.64 billion, beating the analyst consensus estimate of $2.51 billion. Adjusted EPS of $1.85 beat the analyst consensus estimate of $1.70.

Analog Devices expects fiscal third-quarter 2025 revenue of $2.65 billion-$2.85 billion, above the analyst consensus estimate of $2.62 billion. The company projects adjusted EPS of $1.82-$2.02 against the analyst consensus estimate of $1.83.

• Cantor Fitzgerald analyst Matthew Prisco reiterated a Neutral and a $250 price target.
• Benchmark analyst David Williams maintained a Buy and lowered the price target from $275 to $260.
• Needham analyst Quinn Bolton reiterated with a Hold.
• JP Morgan analyst Harlan Sur had an Overweight rating with a price target of $300.

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Cantor Fitzgerald: Similar to Analog peers, Analog Devices offered a solid beat and raise. Prisco noted a cyclical recovery in Industrials coupled with cyclical and idiosyncratic growth elsewhere.

Within Industrials, all sub-segments and geographies grew quarter over quarter. Factory Automation and the Broad-Based sub-segments also recovered.

Overall, book-to-bill was > 1.0, inventory downstream remains lean, and the company is bullish about the current cyclical upturn. Prisco noted some pull-ins that helped the April quarter, with no benefit likely in July. Industrials are still 10-15% below the trend line. A step up in operating expenditure related to variable compensation is weighing on the operating margin outlook into July. Still, there was a return to ~70% gross margins in the quarter.

Benchmark: Williams noted that Analog Devices’ quarterly results and outlook were much better than the stock reaction suggested, with shares down over 4% on the day despite the healthy beat and raise.

The analyst said the cyclical recovery continued gaining momentum, with bookings, backlog, and demand trends improving across all segments and geographies. Commentary around the automotive pull-ins spooked investors, although the company was obvious that order patterns have since normalized.

Williams noted that the most encouraging takeaway from the report is the meaningful improvement from the industrial end market, where bookings and revenue grew across all subsegments. Industrial has been a mixed bag throughout the earnings season.

Still, the results point to positive trends that should translate into better performance for the semi-group in the June quarter, per the analyst.  

Needham: Bolton noted that Analog Devices reported results and guidance that easily exceeded Street’s expectations, which were driven by strength across most end markets.

As per Bolton, auto grew +16% Q/Q, which came in much stronger than anticipated on tariff pull-ins in North America and Europe. He stated that Industrial increased +8% Q/Q in the quarter and is expected to grow another +10% Q/Q in the third quarter, driven by broad-based strength demonstrating early signs of a cyclical recovery.

Bolton remarked that the operating margin will soon be under pressure due to higher variable compensation and increased salary expenses.

JPMorgan: Sur noted that Analog Devices delivered better quarterly results, driven by continued cyclical recovery trends and some customer demand pull-forward in their auto business.

However, the analyst noted that automotive revenue is expected to decline due to the headwind from the quarter’s demand pull forward. The industrial inventory correction is now complete, and the company will be shipping to end demand in the July quarter.  

The team has multiple company-specific growth drivers, such as the AI-related markets, which can grow 20%- 25% Y/Y in fiscal 2025, and aerospace and defense strength, which is tracking to $1 billion in annualized revenues for the July quarter, Sur stated.

Regarding tariffs, Analog Devices saw an acceleration in automotive sell-through and orders. Both the Americas and Europe automotive sectors are up 20% Q/Q following the announcement of the 25% auto tariff. However, the company saw no signs of demand pull-forward in other business segments.

Analog Devices is the first broad-based analog or microcontroller company to highlight customer demand pull-forward. Sur says this could likely weigh on second-half seasonal trends.

The first-half view is solid, though the analyst expected a weaker macro demand environment and sub-seasonal second-half trends.

Price Action: ADI stock is trading lower by 0.75% to $210.35 at last check Friday.

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