You probably have some of Analog Devices'
What analysts say:
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Buy, sell, or waffle? Twelve out of 29 Wall Street analysts are buying this stock today. Three are selling, and the other 14 have pulled up an armchair and a bag of popcorn to see which side is right. In our Motley Fool CAPS system, it's a three-star stock with 112 ratings and 17 written comments.
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Revenues. $652 million would suffice to satisfy the analysts, according to Thomson FirstCall. It's a 4.9% uptick from the $621 million of net revenues generated a year ago. On the other hand, it's well below the company's own forecast, which aims for $670 million to $705 million.
- Earnings. The average forecast calls for $0.41 per share, up from $0.37 last year, and near the top of management guidance of $0.36 per share-$0.42 per share.
What management says:
At a recent product launch, CEO Jerald Fishman addressed the hungry consumers with a recipe for profits:
"A prime mover behind the increasing consumer appetite for electronic entertainment is our customers' ability to bridge the 'expectation gap' between what we see, hear and touch in our everyday lives, and the ability of multimedia content to faithfully reproduce those experiences," he said. "Our signal processing strengths are perfectly aligned to close this gap, which is why ADI's sales to consumer electronics customers have averaged more than 25 percent growth per year over the past four years - well exceeding semiconductor industry growth rates."
That sounds like a business plan to me.
What management does:
The gross margins are stable enough, but there's a disturbing divergence between the cash flow and net income trends. It almost looks like ADI is booking sales more aggressively than it's collecting customer payments, but stable cash conversion numbers don't support that thesis, and the explanation is quite mundane. The cash flow dip comes from increased stock-based compensation, and a hefty $254 million distribution from the company's deferred compensation plan. Employees had a Dec. 31 deadline to make withdrawals if they wanted to take advantage of an option in the American Jobs Creation Act -- so they did.
|
7/2005 |
10/2005 |
1/2006 |
4/2006 |
7/2006 |
10/2006 |
|
|---|---|---|---|---|---|---|
|
Gross |
58.2% |
57.9% |
58.0% |
58.9% |
59.5% |
59.5% |
|
Operating |
23.1% |
23.1% |
23.7% |
22.3% |
26.1% |
26.0% |
|
Net |
20.0% |
17.4% |
17.6% |
18.5% |
18.8% |
21.4% |
|
FCF/Revenue |
23.0% |
24.6% |
26.7% |
27.2% |
21.4% |
19.1% |
At a time when other semiconductor makers are reporting stale sales and bland profits, thanks to weak sales of fancy cell phones, ADI appears to be on a winning track. Not only have revenues picked up lately, but they have also translated into generous profit margins.
|
YOY Growth |
7/2005 |
10/2005 |
1/2006 |
4/2006 |
7/2006 |
10/2006 |
|---|---|---|---|---|---|---|
|
Revenue |
(6.3%) |
(9.3%) |
(6.9%) |
(2.5%) |
6.3% |
7.7% |
|
Earnings |
(9.1%) |
(27.3%) |
(23.8%) |
(13.3%) |
0.1% |
32.5% |
One Fool says:
ADI makes the motion-sensor machinery that makes the Nintendo (OTCBB: NTDOY.PK) Wii console so different. The success of that offering sets this company apart from the competition, and could give it an edge when other electronics manufacturers want to copy that feature. Mindshare is worth real dollars, too.
This company has a bunch of other profitable irons in the fire, too. They make high-definition video decoders for digital television sets or set-top boxes, and low-power versions of the same for your smartphone, portable entertainment gadget, or even the navigation widget in your car. This is no one-trick pony, even if one of the tricks looks cooler than the rest.
Yes, cell-phone slowness hurts these guys, too. But my point is that there's enough diversity here to cushion the blow a bit. The analyst herd seems skeptical of ADI's revenue targets, but I say management wouldn't set such an ambitious target if they didn't think it was reachable. Given all of this, the fireworks tonight should outshine the wet poof reported by most of the competition earlier this quarter.
Competitors:
- Broadcom
(NASDAQ:BRCM) - Texas Instruments
(NYSE:TXN) - Marvell Technology Group
(NASDAQ:MRVL) - NVE
(NASDAQ:NVEC) - Sigma Designs
(NASDAQ:SIGM)
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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure looks good.
