Why Analog Devices stock briefly rose 6% today

Actions of Analog devices (YOU 3.10%) rose as much as 6% Wednesday morning. The maker of high-performance analog and mixed-signal chips peaked at 10:20 a.m. ET and fell to a 2.2 percent gain in the afternoon. Shares rose as Analog Devices reported analyst-beating third-quarter results and in-line guidance for the next quarter. It backed off when management provided a cautious market analysis on the earnings call.

Third-quarter earnings beat expectations

Wall Street consensus estimates for the third quarter indicated adjusted earnings of nearly $1.58 per share on revenue of nearly $2.27 billion. Analog Devices’ sales fell 25% year over year, but still beat the average analyst estimate of $2.31 billion. Earnings fell 37%, beating Street projections to $1.58 per share.

Looking ahead to the fourth quarter, management set the midpoint of their revenue guidance at $2.4 billion, with a midpoint at $1.63 per share. Both targets are within a rounding error of current analyst projections.

That was good enough for a quick price rally in the morning, but investors were less than impressed by CFO Rich Puccio’s market comments. Sales to the automotive industry are likely to remain weak through the first quarter of 2025, based on backlogs and overstocked component inventories in that industry.

The outlook for the auto industry is holding the stock back

The bear market reaction to Puccio’s comments from the auto industry seems a little drastic. He described a short-term trend that will be followed by “rapid growth” in the latter parts of 2025. And the automotive industry remains an important customer segment with plenty of potential growth catalysts.

“We’ve continued to see greater penetration of value capture across all types of vehicles, whether it’s (internal combustion engines), plug-in hybrid electric or all-electric in the fastest-growing applications,” Puccio said.

The company is battling headwinds, but its long-term prospects remain impressive. Analog Devices stock isn’t cheap, trading at 36 times earnings and 12 times sales. At the same time, it appears to be near its all-time highs.