Bernstein: Buy Analog Devices Before The Street Catches On

Analog Devices, Inc. ADI has underperformed peers over the past year following its acquisition of Linear Technologies — which creates a favorable setup for investors, according to Bernstein.

The Analyst

Bernstein's Stacy Rasgon upgraded Analog Devices from Market-Perform to Outperform with a price target boosted from $90 to $105.

The Thesis

Analog Devices' stock is now trading at a 16.5x P/FE multiple, which is not only a discount to its peers, but around 3.5 turns lower than Analog Devices and Linear Technologies' combined historical average, Rasgon said in the upgrade note. This may not be justified, since Analog Devices' fundamentals appear better than many of its higher-valued peers, he said. 

Analog Devices boasts a superior long-term content increase story within the industrial segment, while the communication segment is bolstered by Linear Technologies' business, the analyst said. Consumer headwinds appear to be "well-understood and modeled in," while ongoing deleveraging will serve as an additional value driver and could result in a better-than-expected timeline for the resumption of stock buybacks, Rasgon said. 

Bottom line, Analog Devices has been a stock that the analyst said he "wouldn't talk you out of owning" since 2011. But now investors may want to consider buying before the "story becomes more apparent" to the rest of the Street, he said. 

Price Action

Shares of Analog Devices were trading higher by 3 pecent in Tuesday morning's trading session.

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