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Analog Devices Prices Senior Notes, Gets Moody’s Baa1 Rating

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Leading semiconductor company Analog Devices Inc. ADI recently announced an offering of senior unsecured notes aggregating $750 million. These notes have been issued in two tranches of different amounts with varying coupon rates and maturities.

The first tranche of $300 million carries an interest rate of 2.850% and is due in 2020 while the second tranche of $450 million, which has an interest rate of 2.950%, is due in 2021.

The company stated that the transaction proceeds will be used to repay a portion of the amount outstanding under its five-year term loan.

Following the news, the company’s share price was up 2.1%. However, the stock has underperformed the industry it belongs to on a 12-month basis. The company’s shares have gained only 14.5% compared with the industry’s growth of 24.9%.


Analog Devices’ Cash Position

At the end of fiscal first-quarter 2018, cash and short-term investments totaled $827.6 million, down from $1.05 billion at the end of the prior quarter. Long-term debt was approximately $7.38 billion, down from $7.55 billion at the end of the previous quarter. Net cash provided by operations was $388.7 million in the reported quarter.

We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, further improving its growth prospects. The senior notes’ offering will bring down the company’s cost of capital, in our view, thus strengthening its balance sheet and supporting growth.

Moody's Rating

Analog Devices’debt issue was assigned a Baa1 rating by a leading credit rating agency Moody's, along with a positive outlook.

The rating has been assigned based on its optimism on Analog’s sustained strong operating performance of the analog segment. The rating agency further believes that the acquisition of Linear Technology has further enhanced Analog’s business profile. Moreover, it expects profitability to improve over the long term, driven by broad geographic, customer and end-market diversification. As a result, for fiscal 2018, Moody expects Analog to generate over $6 billion of revenues and $3 billion of EBITDA.

Moody’s assigned a positive outlook on the rating based on its belief that Analog will continue to reduce its debt in the near term and sustain operating performance.

Zacks Rank & Stocks to Consider

Analog Devices has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the technology sector are PetMed Express PETS, Teradyne TER and Brady Corporation BRC. While PetMed and Teradyne sport a Zacks Rank #1 (Strong Buy), Brady Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for PetMed, Teradyne and Brady Corporation is projected to be 10%, 12% and 7.5%, respectively.

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