Analog Devices Inc Valuation – August 2016 $ADI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Analog Devices Inc (ADI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Analog Devices, Inc. is engaged in designing, manufacturing and marketing analog, mixed-signal and digital signal processing (DSP) technology, including integrated circuits (ICs), algorithms, software and subsystems. The Company’s operating segments include United States, Rest of North/South America, Europe, Japan, China and Rest of Asia. The Company’s signal processing products help in converting, conditioning and processing real-world phenomena, such as temperature, pressure, sound, light, speed and motion into electrical signals. It offers data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products, sensors based on micro-electro mechanical systems (MEMS) technology and other sensors, and processing products. Its products are embedded inside various types of electronic equipment, including industrial process control systems, medical imaging equipment, optical systems, automobiles and portable electronic devices.

ADI Chart

ADI data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ADI – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,632,208,677 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.97 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 36.85% Pass
6. Moderate PEmg Ratio PEmg < 20 27.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.98 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 6.97 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.43 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ADI value chart August 2016

EPSmg $2.31
MG Growth Estimate 0.61%
MG Value $22.42
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $33.45
MG Value based on 0% Growth $19.61
Market Implied Growth Rate 9.59%
Current Price $63.84
% of Intrinsic Value 284.79%

Analog Devices, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.22 in 2012 to an estimated $2.31 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.59% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Analog Devices, Inc. revealed the company was trading above its Graham Number of $31.33. The company pays a dividend of $1.64 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 27.68, which was above the industry average of 22.64. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.52.

Analog Devices, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

ADI charts August 2016

Net Current Asset Value (NCAV) $6.52
Graham Number $31.33
PEmg 27.68
Current Ratio 6.97
PB Ratio 3.98
Current Dividend $1.64
Dividend Yield 2.57%
Number of Consecutive Years of Dividend Growth 13


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Most Recent Balance Sheet Figures

Balance Sheet Information 7/1/2016
Total Current Assets $4,727,888,000
Total Current Liabilities $678,693,000
Long-Term Debt $1,731,758,000
Total Assets $7,685,053,000
Intangible Assets $2,168,068,000
Total Liabilities $2,701,720,000
Shares Outstanding (Diluted Average) 310,558,000

Earnings Per Share History

Next Fiscal Year Estimate $2.69
Oct2015 $2.20
Oct2014 $1.98
Oct2013 $2.14
Oct2012 $2.13
Oct2011 $2.81
Oct2010 $2.33
Oct2009 $0.85
Oct2008 $2.67
Oct2007 $1.50
Oct2006 $1.48
Oct2005 $1.08
Oct2004 $1.45
Oct2003 $0.78
Oct2002 $0.28
Oct2001 $0.93
Oct2000 $1.59
Oct1999 $0.55
Oct1998 $0.36
Oct1997 $0.52
Oct1996 $0.52

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.31
Oct2015 $2.16
Oct2014 $2.19
Oct2013 $2.21
Oct2012 $2.22
Oct2011 $2.18
Oct2010 $1.84
Oct2009 $1.56
Oct2008 $1.83
Oct2007 $1.36
Oct2006 $1.19
Oct2005 $1.00
Oct2004 $0.98
Oct2003 $0.77
Oct2002 $0.76
Oct2001 $0.93
Oct2000 $0.85

Recommended Reading:

Other ModernGraham posts about the company

Analog Devices Inc Stock Valuation – February 2016 $ADI
Analog Devices Inc. Analysis – September 2015 Update $ADI
Analog Devices Inc Stock Valuation – February 2016 $ADI
Analog Devices Inc. Analysis – September 2015 Update $ADI
Analog Devices Stock Analysis – June 2015 Update $ADI

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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