Analog Devices stock: earnings preview amid Empower buyout rumors

Analog Devices stock price has jumped by 52% this year and by 87% in the last 12 months, beating the broader market. This rally will be put to the test on Wednesday when it releases its financial results. It may also announce the Empower announcement as soon as today.

Analog Devices may acquire Empower

ADI stock has performed well over the past few months, helped by ongoing demand for its products across sectors such as data centers, automotive, aero and defense, and healthcare.

The company will be in the spotlight in the next two days. According to Bloomberg, Analog Devices is considering acquiring Empower, a company that makes voltage-regulating chips for AI processing and data centers. This deal, if it is announced, comes at a time when AI spending is accelerating.

Bloomberg notes that the potential deal size will be about $1.5 billion, making its biggest acquisition since it spent $21 billion buying Maxim Integrated in 2021. Before that, it bought Linear Technology in a $14.8 billion deal, which expanded its analog chip portfolio.

ADI to publish its earnings

Analog Devices stock will next react to its financial results, which will provide more color on its business. The most recent results showed that its revenue rose to $3.6 billion in the fiscal first quarter, with its growth accelerating across all end markets. 

In a statement, the management noted that bookings were driven by its strength in industrials and its data center cloud business. Revenue jumped by 30%, while its operating income soared by 103% to $997 million.

The company channeled some of these profits to paying its dividends and share buybacks. It spent $1 billion in dividends and buybacks in the fiscal first quarter and $4.47 billion last year. 

Analysts are optimistic that the company will publish strong financial results tomorrow. The average estimate is that its revenue jumped by 33.23% in the quarter to $3.52 billion. Its earnings per share are expected to move to $2.91 from $1.85 in the same period last year.

Analysts see the annual revenue will come in at $14 billion, up by 27.2% YoY, followed by $15 billion in the coming financial year. 

A key challenge for the company is that it has become quite expensive, with the forward price-to-earnings ratio rising to 49. Its multiple is higher than the sector median of 31 and its five-year average of 43. 

Analog Devices stock technical analysis

ADI stock chart | Source: TradingView

The daily chart shows that the ADI share price peaked at $434 this month as the rally gained steam. It has remained above the crucial resistance level at $363, its highest point in February.

The stock has remained above all moving averages. For example, the 100-day moving average remains at $342, much lower than the current $418. 

There is also a risk that the two lines of the MACD indicator have made a bearish crossover pattern. Analog Devices’ Relative Strength Index has formed a bearish divergence as it fell from 80 to the current 63.

Therefore, there is a risk that the stock may retreat and retest the support at $363. This would be a break-and-retest pattern, which is a common bullish reversal sign in technical analysis.