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Can Analog Devices (ADI) Run Higher on Rising Earnings Estimates?

Analog Devices (ADI) shares have started gaining and might continue moving higher in the near term, as indicated by solid earnings estimate revisions.

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This story originally appeared on Zacks

Analog Devices (ADI) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.

- Zacks

The upward trend in estimate revisions for this semiconductor maker reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for Analog Devices, as there has been strong agreement among the covering analysts in raising estimates.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $1.70 per share, which is a change of +18.06% from the year-ago reported number.

Over the last 30 days, two estimates have moved higher for Analog Devices while seven have gone lower. As a result, the Zacks Consensus Estimate has increased 19.72%.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $6.41 per share, representing a year-over-year change of +30.55%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Analog Devices. Over the past month, three estimates have moved higher compared to five negative revisions, helping the consensus estimate increase 5.3%.

Favorable Zacks Rank

The promising estimate revisions have helped Analog Devices earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Analog Devices because of its solid estimate revisions, as evident from the stock's 6% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.



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