Is Analog Devices Worth 20% More? (ADI)

Analog Devices Inc. (NYSE: ADI) was raised to “Buy” with a $42.00 price target earlier this morning by the research team at Stern Agee.  Vijay Rakesh and Mark Kelley noted the stabilizing ISM and PMI data in the U.S and China going into the first half of 2012.

After two quarters of industrial order and channel contraction in the U.S.-Europe-China, the first quarter of 2012 will see order stabilization.  Leaner industrial channel inventories and order stabilization into first quarter and a restoration-recovery in communication orders after the Thai floods puts Analog Devices in for a rebound.

Industrial is about 55% of sales and Communications is about 20% of sales.  The research also notes that the company is further lowering in-house inventories this quarter (10% guided) as distributor inventories were down 11%.

The $42.00 target implies almost 20% upside from the $35.21 close on Thursday and this is about 16-times Fiscal 2013 earnings and it is said to have one of the best management teams that is focused on cost controls.