Analog Devices (ADI) is entering the later stages of a downcycle, with the severity of the current downturn pointing to a bottom in Q2 of next year, Morgan Stanley said in a note emailed Friday.
“We are not yet at bottom — but it is in sight: current analog/MCU downcycle is expected to bottom in May 2024,” the investment bank said, citing a 24-month peak to trough view. The current cycle peaked in May 2022, according to analysts.
Morgan Stanley said Analog Devices has outperformed its peers in the past three downcycles in terms of gross margin, adding the company’s forward earnings are de-risked and the company has relatively higher ASP products that should limit direct competition with Chinese products.
Analog Devices’ quarterly results, expected on Nov. 21, “will be mixed at best,” the investment bank said.
“We revise down estimates, and now forecast a 23% peak-to-trough revenue decline, with revenue bottoming in the April quarter,” the note said.
The investment bank upgraded Analog Devices to overweight from equal-weight and increased its price target to $225 from $176.