One of the Better Picks Among Chipmakers
We would probably be enthusiastic buyers of wide-moat Analog Devices in the event of a pullback.
Our key takeaway from
Analog Devices provided investors with nice insight into its long-term revenue growth targets by sector, all of which we think are achievable. The firm foresees industrial revenue growing at 2 times global gross domestic product, automotive sales at 3 times the rate of global auto production, and up to mid-single-digit sales growth for its consumer business (excluding the effects of the company's declining chip business with Apple) and telecom segment. These rates also don't factor in potential revenue synergies for Analog Devices-Linear, yet the company thinks it might be able to achieve another $1 billion of sales from the merger (starting in 2019) by cross-selling products to new customers and applications. Meanwhile, the firm's targets of 70% gross margins and 39%-45% operating margins appear conservative to us in light of previously discussed expense synergies with Linear.
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