Business Description

Analog Devices is a leading analog, mixed signal, and digital signal processing chipmaker. The firm has a significant market share lead in converter chips, which are used to translate analog signals to digital and vice versa. The company serves tens of thousands of customers, and more than half of its chip sales are made to industrial and automotive end markets. Analog Devices’ chips are also incorporated into wireless infrastructure equipment.

Recommendation (Sept 2020)

A good business, but not a great investment at $115 per share.

A price of $115 per share implies that ADI will grow its revenue by 2.2x over the next 10 years, starting 2021. I.e. a CAGR of 5.6%.

If we assume that EPS will grow at 10% CAGR for 10 years and will trade at 22x earnings in 2029, the Projected price that year would grow 1.7x plus $35 worth cumulative dividends. 
A purchase today at $115 would result in a return of 7.2% CAGR.

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