Analog Devices (ADI) to Report Q2 Earnings: What’s in Store?

Analog Devices, Inc. ADI will report second-quarter fiscal 2018 results on May 30, before the bell.

The company’s earnings surprise history has been decent, as it has beaten estimates in each of the last three quarters with a positive average of 11.7%. The stock, however, has slightly underperformed the industry in the past 12 months. It has gained 15.26% compared with the industry’s rally of 15.96%.

Let’s see how things are shaping up for this announcement.

First-Quarter Snapshot

Analog Devices, one of the world leaders in the design, manufacture and marketing of high-performance analog, mixed-signal and digital signal processing integrated circuits, generated revenues of $1.52 billion, down 1.5% sequentially but up 54.3% year over year. The strong year-over-year growth was driven by a robust performance from industrial, automotive and communications end-markets.

Factors at Play in the Quarter

Analog Devices has been benefiting from strength in the markets of industrial, automotive, consumer and communications, and the increased focus on innovation and operational execution. While its investments are aimed at strengthening the product line and fending off competition, the policy of returning cash through dividends and share buybacks will ensure investor loyalty.

In March, Analog Devices acquired a privately held company, Symeo GmbH, for an undisclosed amount. The deal seems appealing because Symeo's signal processing algorithms offer high precision RADAR solutions. These solutions enable system integrators and original equipment manufacturers to work with great precision in rough industrial environments. The deal will likely improve the company’s customer base and add to its growth.

For the fiscal second quarter, management expects continued sequential and year-over-year revenue growth, and revenues in the range of $1.43-$1.51 billion. On a non-GAAP basis, the company estimates gross margin of approximately 71-71.5%. Operating expenses are expected between $430 million and $440 million.

The company expects interest and other expenses of approximately $60 million, and earnings per share in the range of $1.30-$1.44.

Earnings Whispers

Our proven model does not conclusively show that Analog Devices will beat on earnings in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for the stock is -0.53%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Analog Devices carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement.

Stocks to Consider

Booz Allen Hamilton Holding Corporation BAH has an Earnings ESP of +3.62% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Box, Inc. BOX has an Earnings ESP of +1.37% and a Zacks Rank of 3.

Microsemi Corporation MSCC has an Earnings ESP of +0.25% and a Zacks Rank #3.

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