MW This chip maker's CEO called a bottom, and the high-yielding stock is soaring

By Tomi Kilgore

Analog Devices' stock is having its best five-day run in five years, as its CEO believes the bottom of the semiconductor cycle has passed

Shares of Analog Devices Inc. are having their best five-day run in five years, with Wednesday's rally coming after the semiconductor maker beat quarterly earnings expectations and provided an upbeat outlook, amid strength in sales to the automotive and industrial markets.

The Massachusetts-based company $(ADI)$ also boosted its relatively high dividend by 8% and increased its stock-repurchase program by $10 billion. And Chief Executive Vincent Roche indicated on the post-earnings call with analysts that despite the "challenging" geopolitical and economic backdrop, the market for its analog chips has turned higher.

"While the macro backdrop will continue to influence the pace of our recovery, the signals we monitor from lean channel inventories to gradual bookings improvements over the past 18 months support our view that we've passed the cyclical trough and the tide has turned in our favor," Roche said, according to an AlphaSense transcript.

The stock shot up 7.5% in midday trading toward a seven-month high. It has soared 16.3% amid a five-day winning streak, which would be the stock's best five-day performance since it rose 20.6% over the five days through April 8, 2020.

Analog Devices isn't the only chip maker that has seen a recent surge in its stock price. Intel's stock is down 5.8% on Wednesday but has still soared 35.1% in seven sessions, fueled by the belief that the Trump administration will support domestic chip makers as well as by some speculation around deal activity.

Over those same seven sessions, the PHLX Semiconductor Index SOX has gained 5.8%.

Meanwhile, Analog Devices said it was raising its quarterly dividend to 99 cents a share from 92 cents a share, with shareholders of record on March 4 to be paid the new dividend on March 17.

At current prices, the new annual dividend rate of $3.96 implies a dividend yield for the stock of 1.67%, compared with the yield for the VanEck Semiconductor exchange-traded fund SMH of 0.42% and the implied yield for the S&P 500 index SPX of 1.24%.

In comparison, the yield on chip-sector leader Nvidia Corp.'s stock $(NVDA)$ is 0.03% and the yield on Broadcom Inc.'s stock $(AVGO)$ is 1.04%. Neither Intel Corp. $(INTC)$ nor Advanced Micro Devices Inc. $(AMD)$ pay dividends.

Analog Devices also said the $10 billion it was adding to its stock-buyback program increases the authorization for repurchases to $11.5 billion. That represents 9.8% of the company's current market capitalization of $117.4 billion.

Separately, the company reported revenue for the fiscal first quarter, which ended Feb. 1, of $2.42 billion, down 3.6% from the same period a year ago and just above the FactSet consensus of $2.36 billion.

Among the markets the company sells to, industrial revenue declined 9.6% from a year ago to $1.08 billion but increased sequentially from fourth-quarter revenue of $1.07 billion. Automotive revenue slipped 2.2% from last year to $732.5 million but increased from fourth-quarter revenue of $717 million.

The FactSet consensus had called for industrial revenue to decline sequentially to $1.06 billion and for automotive revenue to dip to $702.6 million.

Net income in the latest quarter fell to $391.3 million, or 78 cents a share, from $462.7 million, or 93 cents a share, a year ago. Excluding nonrecurring items, such as acquisition-related expenses, adjusted earnings per share of $1.63 topped the FactSet EPS consensus of $1.54.

For the fiscal second quarter, the company provided a guidance range for adjusted EPS in which the midpoint was $1.68, which is above the current FactSet consensus of $1.65. The midpoint of the revenue guidance was $2.5 billion, compared with expectations of $2.45 billion.

Analog Devices' stock has rallied 12.5% over the past three months, while the PHLX Semiconductor Index has gained 7.7% and the S&P 500 has tacked on 3.6%.

-Tomi Kilgore

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February 19, 2025 13:28 ET (18:28 GMT)

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