After fifteen years of stagnation on the stockmarket, Analog Devices completely reinvented itself with the acquisition of Linear Technology in 2017, followed by its merger with Maxim Integrated in 2021, which opened up a series of new opportunities, particularly in the automotive and healthcare sectors.
Both these strategic moves reinforced its position and helped to balance the company's business portfolio. Note that its merger with Maxim was made using Analog Devices as currency, when the latter was trading at a record multiple of over 30x EBITDA.
A sign of the times: the group's valuation is once again heading towards this level. It should be said that, after last year's slowdown – an inevitable backlash following the exceptional economic situation during the pandemic – it has resumed revenue growth in the first nine months of the year.
As usual, Analog will probably be able to return all of its profits to shareholders this year, i.e., between $3bn and $4bn per year. This should be viewed in relation to its market capitalization of $120bn.
Prudently managed, the group has very low debt, equivalent to just 18 months of profit. This partly explains what some would consider insufficient profitability. However, a peer such as Texas Instruments is performing better without resorting to leverage either.
MarketScreener analysts cannot fail to note that Analog has been aggressively buying back its shares since 2021, i.e., since its valuation has been trading at high cycle multiples. Judging by his recent sales of shares on the market, co-founder Raymond Stata seems to agree with this view.
The aim is to avoid a disappointment similar to that of Estée Lauder, a caricature of poorly timed and value-destroying share buybacks.
