Integrated circuits (IC) developer Analog Devices (NYSE: ADI) stock has only fallen (-11%) during the technology bear market. A slowing economy riddled with supply chain disruption and falling PC demand is a perfect storm for deeper selling in the sector. Demand still remains strong, especially in the automotive sector and automation, electrification, and advanced connectivity. With that said, Analog Devices blew out its fiscal Q2 2022 earnings as revenues rose almost 79% from a year ago with double-digit growth across all B2B markets. Despite supply chain challenges, the Company had its fifth consecutive quarter of unprecedented growth and record revenues. The acceleration is expected to continue as the company also raised its guidance for Q3 2022. Its mixed signal and product portfolio enable the intelligent edge to accelerate digital transformation and digitization across multiple industries from telecoms as the leader in radio signal chains for 5G to leading electric vehicle (EV) battery management systems, to be the dominant market share position in medical imaging. Shares are trading at only 16.8X forward earnings with a 1.98% dividend yield. Prudent investors seeking exposure in a defensive chip play that is still in hypergrowth mode riding the Intelligent Edge ICT revolution can watch for opportunistic pullbacks in shares of Analog Devices.
Q2 Fiscal 2022 Earnings Release
On May 19, 2022, Analog Devices reported its fiscal Q2 2021 results for the quarter ending April 2022. The Company reported diluted earnings-per-share (EPS) of $2.40, beating consensus analyst estimates of $2.11 by $0.29. Revenues rose 78.9% year-over-year (YoY) to $2.97 billion beating $2.84 billion consensus analyst estimates. The Company had $3.65 billion in operating cash flow and $3.20 billion in free cash flow or 33% of revenues. The Company returned $1.17 billion to shareholders comprised of $776 million in stock buybacks and $398 million in dividends. Analog Devices CEO Vincent Roche commented, “ADI delivered its fifth consecutive quarter of record revenue, illustrating the unprecedented demand for our technologies and our ability to increase output in a challenging supply backdrop. Top line strength combined with successful synergy execution enabled adjusted gross margin, operating margin, and EPS to achieve new highs. Despite increasing geopolitical uncertainty and ongoing supply chain disruptions, we enter the second half from a position of strength with increased capacity and continued bookings momentum.”
Analog Devices provider upside EPS guidance for fiscal Q3 2022 EPS between $2.32 to $2.52 versus $2.17 consensus analyst estimates. The Company sees fiscal Q3 2022 revenues to come in between $2.95 billion to $3.15 billion versus the $2.89 analyst estimates.
Conference Call Takeaways
CEO Roche stated the Company is operating from a position of remarkable strength driven by “insatiable demand” as evidenced by its robust bookings, record backlog, and ongoing capacity expansions. The Company is riding the nascent Intelligent Edge revolution, the next wave of ICT. CEO Roche elaborated, “It will be characterized by ubiquitous sensing, hyperscale computing, and pervasive connectivity, pushing processing and intelligence closer to the edge. Semiconductors are the bedrock enabling this next wave. And ADI, where data is born, is at the center of this revolution.” As the leader, the Company has the industry’s highest performance analog, mixed-signal, and power portfolio. Its technology continues to drive next-generation applications in industries from transportation, energy, manufacturing, telecoms, and healthcare. He expects the proliferation of Intelligent Edge and its revenue strategy to bolster the growth curve to 7% to 10% from 5%. The Company shipped 75,000 product SKUs to over 125,000 customers. Diversification is exemplified by 80% of its revenues being derived from products that individually only contribute 0.1% of the total top line. Its products have life spans than exceed a decade and are developed through a hybrid manufacturing strategy that enables the technology and packaging needed for solutions from 7 nanometers to 7 micrometers.
ADI Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precise view of the playing field for ADI shares. The weekly rifle chart formed a double bottom off the $144.43 Fibonacci (fib) level. The weekly uptrend was abruptly rejected off the weekly 50-period moving average (MA) at $167.02. Shares plunged through the weekly 5-period MA at $162.18 and the weekly 15-period MA at $159.39 causing the stochastic rise to stall under the 70-band. The drop also collapsed shares right through the weekly market structure low (MSL) buy trigger at $164.92. The daily rifle chart has a breakdown as the falling 5-period MA at $163.15 crosses down through the 15-period MA at $164.21 and the daily 50-period MA at $160.18. The daily lower Bollinger Bands (BBs) sit at $154.35, and the weekly lower BBs sits at $146.83. The daily stochastic formed a mini inverse pup plunge through the 80-band.Prudent investors can watch for opportunistic pullback levels at the $154.69, $152.31 fib, $146.22 fib, $144.43 fib, $137.54 fib, $136.19 fib, and the $132.38 fib level. Upside trajectories range from the $167.08 fib level up to the $178.13 fib level.