Key Takeaways:
- The 2-Minute Valuation Model values Analog Devices stock at $285 per share in 2 years.
- That’s a potential 31% upside from today’s price of $217 per share.
- ADI stock is projected to grow EPS by 65% over the next 3 years as analog semiconductor demand recovers.
- The stock is trading at reasonable multiples for a high-quality analog chip leader with diversified end markets.
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Analog Devices (ADI) is a leading global semiconductor company that designs and manufactures analog, mixed-signal, and digital signal processing integrated circuits.
With a diversified portfolio serving industrial, automotive, communications, and consumer markets, ADI has established itself as a critical supplier of high-performance analog solutions that bridge the physical and digital worlds.
With ADI stock now trading at about $217 per share, Analog Devices presents a compelling opportunity for investors seeking exposure to the analog semiconductor recovery at a reasonable valuation for a quality industrial technology leader.
Let’s examine why this analog semiconductor stalwart could deliver solid returns as end markets recover and new growth drivers accelerate.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings-per-share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why Analog Devices Stock Looks Undervalued
Forecast
Based on analyst estimates shown in the EPS chart, Analog Devices is expected to achieve significant earnings-per-share growth.
EPS is projected to grow from $6.38 in fiscal 2024 (ended in October) to about $10.52 by 2027, representing a 65% total increase over three years.
The recovery shows steady momentum. In 2025, it is expected to deliver 16% growth to $7.41, followed by 18% growth in 2026 to $8.76 and 20% growth in 2027.
This earnings growth for ADI stock is likely to be driven by:
- Industrial automation growth: ADI’s industrial solutions benefit from factory automation and digitalization trends.
- Automotive electrification: Electric vehicles and ADAS systems require sophisticated analog components.
- Communications infrastructure: 5G and edge computing deployments drive demand for high-performance analog chips.
- Margin expansion: Operational leverage and a higher-value product mix are expected to boost profitability as volumes recover.
For our valuation, we’ll estimate that ADI will reach $10.25 in EPS in fiscal 2027.
Check out ADI’s full analyst estimates (It’s free) >>>
Is ADI Stock Undervalued Right Now?
Analog Devices stock trades at around 27x forward earnings, which is above its 10-year historical average P/E of 22x, as shown in the valuation chart.
However, this premium is justified by the company’s accelerating growth and strategic positioning in high-growth markets.
For our valuation, we’ll use a forward P/E multiple of 27x. This is above its historical average, but it acknowledges the company’s improved growth profile.
Fair Value of ADI Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $10.25
- Conservative forward P/E multiple: 27x
- Expected dividends over the next 2 years: $8
Expected Normalized EPS ($10.25) * Forward P/E ratio (27x) + Expected Dividends ($8) = Expected Share Price ($285)
The 2-year expected ADI stock price we would get from this valuation is $285 per share.
With Analog Devices stock currently trading at around $217 per share, this implies a potential upside of 31% over the next two years, or a 15% annualized return.
ADI stock is well-positioned to deliver outsized gains to shareholders, given that average annual returns for the broader markets have been around 10%.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is Analysts’ Target Price for ADI Stock?
Analysts think that Analog Devices stock could have strong upside today.
Analysts have an average price target of around $244 per share for ADI stock, indicating they see about 12% upside today for the chip maker based on its current share price. However, the high target price for ADI stock is $300, which aligns closer with our valuation estimates.
Risks to Consider
Despite the bullish outlook, investors should be aware of several risks that could impact Analog’s growth trajectory:
- Cyclical exposure: Analog semiconductors are subject to industrial and automotive cycle fluctuations.
- Competition pressure: Increasing competition in key analog markets could pressure margins.
- Geopolitical risks: Trade tensions and export restrictions could impact global operations.
- End market concentration: Heavy exposure to industrial and automotive markets creates cyclical vulnerability.
TIKR Takeaway
Analog Devices presents a solid, quality-oriented investment opportunity at current levels. The tech stock’s upside potential is driven by its leadership position in high-performance analog solutions and exposure to long-term growth trends in industrial automation, automotive electrification, and communications infrastructure.
While ADI stock may not offer explosive growth, its diversified end-market exposure, strong competitive moats, and consistent execution make it an attractive potential holding for investors seeking steady returns with defensive characteristics.
Is ADI stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets and growth forecasts to see if it is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
