Company Profile (excerpt from Reuters): Analog Devices, Inc. (Analog Devices), incorporated on January 18, 1965, designs, manufactures and markets a portfolio of solutions that leverage high-performance analog, mixed-signal and digital signal processing(DSP) technology, including integrated circuits (ICs), algorithms, software and subsystems. The Company provides Analog Products, such as Converters, Amplifiers/Radio Frequency, Other Analog, and Power Management and Reference. It also offers Digital Signal Processing Products (DSPs). The Company operates in the United States, Rest of North/South America, Europe, Japan and China.
Downloadable PDF version of this valuation:
ModernGraham Valuation of ADI – March 2019
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 | $40,551,370,837 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.34 | 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 | 55.98% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 29.32 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 3.54 | 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 | 2.34 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 5.49 | Fail | |
| 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
| EPSmg | $3.75 |
| MG Growth Estimate | 11.06% |
| MG Value | $114.96 |
| Opinion | Fairly Valued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $54.43 |
| MG Value based on 0% Growth | $31.91 |
| Market Implied Growth Rate | 10.41% |
| Current Price | $110.06 |
| % of Intrinsic Value | 95.74% |
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 is only concerned with the level of debt relative to the net current assets. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.16 in 2015 to an estimated $3.75 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 10.41% 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 within a margin of safety relative to the price.
At the time of valuation, further research into Analog Devices, Inc. revealed the company was trading above its Graham Number of $59.5. The company pays a dividend of $1.89 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 29.32, which was below the industry average of 35.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-22.17.
Analog Devices, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$22.17 |
| Graham Number | $59.50 |
| PEmg | 29.32 |
| Current Ratio | 2.34 |
| PB Ratio | 3.54 |
| Current Dividend | $1.89 |
| Dividend Yield | 1.72% |
| Number of Consecutive Years of Dividend Growth | 15 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 1/1/2019 |
| Total Current Assets | $1,985,180,000 |
| Total Current Liabilities | $849,955,000 |
| Long-Term Debt | $6,234,517,000 |
| Total Assets | $21,828,278,000 |
| Intangible Assets | $16,885,588,000 |
| Total Liabilities | $10,242,841,000 |
| Shares Outstanding (Diluted Average) | 372,506,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $5.30 |
| Oct2018 | $3.97 |
| Oct2017 | $2.07 |
| Oct2016 | $2.76 |
| 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 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $3.75 |
| Oct2018 | $2.85 |
| Oct2017 | $2.27 |
| Oct2016 | $2.33 |
| 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 |
Recommended Reading:
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Disclaimer:
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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