Needham downgrades Analog Devices to hold, sees start of larger slowdown in semiconductors

The semiconductor industry is poised to slow in the coming quarters, which could put especially pressure shares of Analog Devices, according to Needham. The research firm on Thursday downgraded shares of Analog Devices to hold from buy and removed its price target. Needham previously had s target price of $170 on the stock. “We view ADI as a premium franchise in precision analog ICs, but given the weakening outlook and the recent rally in ADI shares, we recommend investors wait for estimate cuts and the inventory purge to occur before buying shares,” N. Quinn Bolton wrote in a note. The company saw orders and point-of-sale trends begin to moderate at the end of the third quarter of its 2022 fiscal year, according to Needham. At the same time, sales to other businesses fell below previous quarters and cancellations ticked up slightly. This is likely to continue in the upcoming quarters, creating a headwind for shares, Bolton said. He also thinks growth is set to slow on a quarterly and yearly basis. Range bound In addition, the stock has been trading in a relatively solid range but doesn’t look set to break out of it given the macroeconomic backdrop. “Over the past 10 years, ADI has traded on average at an ~20x FTM P/E and an ~18x forward 2-year P/E,” Bolton wrote. Now, the shares are trading at roughly 19.6x and 17.5x Needham’s new earnings per share estimates for 2023 and 2024. “Respectively, we believe it is difficult to justify a higher multiple or PT (prior PT was $170) in this weakening environment,” said Bolton.

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