Investors might want to bet on Analog Devices (ADI), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.
The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this semiconductor maker, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For Analog Devices, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The company is expected to earn $3.19 per share for the current quarter, which represents a year-over-year change of +55.6%.
Over the last 30 days, the Zacks Consensus Estimate for Analog Devices has increased 10.55% because five estimates have moved higher compared to no negative revisions.
Current-Year Estimate Revisions
For the full year, the company is expected to earn $12.31 per share, representing a year-over-year change of +58.0%.
The revisions trend for the current year also appears quite promising for Analog Devices, with 10 estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 8.49%.
Favorable Zacks Rank
Thanks to promising estimate revisions, Analog Devices currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
Investors have been betting on Analog Devices because of its solid estimate revisions, as evident from the stock's 9.6% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.
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Analog Devices, Inc. (ADI): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).