By Mackenzie Tatananni

Analog Devices stock is "one of the most attractive opportunities" in the semiconductor space, Benchmark analyst David Williams said in a note published Friday.

Williams initiated coverage on shares of the integrated circuit maker with a Buy rating and $245 price target. The analyst believes the company is "uniquely positioned to drive sustained growth, margin expansion, and compelling shareholder returns."

Analog Devices stock was up 1.7% at $212.73 on Friday. Williams' price target suggests a 17% upside to Thursday's closing price.

The analyst highlighted the company's 2021 acquisition of Maxim Integrated Products, another circuit manufacturer. In his view, this combined portfolio will help Analog Devices make up ground on competitors like Texas Instruments and capture a larger share of the semiconductor bill of materials, or the parts required to build the advanced chips.

"We think substantial revenue synergies from the Maxim acquisition will be unlocked over the next few years as the pipeline of new products ramp, " Williams wrote.

Beyond the company's attractive product slate, Williams is also a fan of its business structure, dubbing Analog Devices a "highly profitable cash generating machine."

The analyst nodded to its "significant cash generating model and generous capital allocation strategy," which is targeting a return of 100% free cash flow to shareholders.

Williams noted that Analog Devices has consistently delivered dividend increases over the past two decades. The company has averaged 10% growth in the past 10 years, equating to $10 billion and a similar level of cash through share repurchases, 81% of which was distributed in the last four years alone.

Analog Devices is also positioned to capitalize on a seemingly endless appetite for artificial intelligence, Williams said. AI-related revenue was roughly $400 million in 2023, with the company's Test and Measurement businesses notching a "record year" driven by demand for high-bandwidth memory testing equipment.

Analog Devices saw healthy demand for AI server system power and hot swap solutions, which are set to begin shipping in late 2025 "with meaningful growth expected this year," Williams wrote.

Wall Street is generally upbeat about Analog's trajectory. Of 34 analysts polled by FactSet, 21 rate Analog Devices at Buy or equivalent, while 13 rate it at Hold.

Williams' coverage of the stock comes just before Analog's fourth-quarter earnings report, set for Feb. 19. "Earnings leverage should return this year driving solid fundamental expansion and strong cash generation," the analyst wrote.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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February 14, 2025 10:52 ET (15:52 GMT)

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