Analog Devices Inc (ADI)

Conclusion

Analog Devices designs and manufactures analog and mixed-signal integrated circuits for industrial, automotive, communications and consumer customers. At 394.66 USD on 2026-11-09, the company has a market capitalisation of 191.2 billion USD and an enterprise value of 198.0 billion USD.

The verdict is overvalued. The P/E of 46.2 sits against a ten-year median of 35.3, a premium of 30.9%, and EV/EBITDA of 28.2 sits against a median of 20.1, a premium of 40.0%. The DCF gives 212.06 USD per share at a discount rate of 11.2%, and the fair value from historical multiples is 272.16 USD. The fair value band runs from 193.69 to 290.53 USD with a midpoint of 242.11 USD, a margin of safety of -38.7% at the current price. The reverse DCF implies 20.2% annual growth, against a five-year revenue CAGR of 14.5% and a five-year FCF-per-share CAGR of 11.7%.

What holds the case up is the balance sheet and margins: net debt to EBITDA of 0.97, an Altman Z-score of 8.74 and an operating margin of 35.6%. What would break it is returns and dilution. ROIC of 10.5% sits just below a WACC of 10.8%, the share count has grown at a CAGR of 5.9% over five years, and the price-to-sales multiple of 13.8 compares with a ten-year median of 7.4.

Financial health

The financial strength is green, held up by a net debt to EBITDA of 0.97, interest coverage of 14.4 and a current ratio of 1.25. The quick ratio is lower at 0.83, and debt to equity is 0.27. The Altman Z-score is 8.74, well inside the safe zone. As a semiconductor manufacturer, ADI is a company the Altman model was designed for. Insolvency risk: low, about 0.05% by the estimate of the Ohlson model over one to two years. Debt has fallen over the last five years at an annual rate of -3.7%, which means the company has been reducing its borrowings relative to revenue.

Earnings quality

Earnings quality is yellow, because the cash generation is strong but the share count keeps rising. Free cash flow conversion is 119.4% on a trailing basis and 150.8% over five years, and the accrual ratio is -0.0529, which is a conservative sign. The Piotroski score is 8 out of 9. Stock-based compensation is 2.5% of revenue, leaving free cash flow after SBC of 4.59 billion USD. The share count has grown at a CAGR of 5.9% over five years, so there are no net buybacks. The Beneish M-score is not available. ADI beat earnings estimates in all 8 of the last quarters, with an average surprise of 4.96%. Estimates for next year have been revised up by 9.6% over 90 days.

Profitability

Profitability is green. The gross margin is 65.8% against a ten-year median of 65.5%, and the operating margin is 35.6% against a median of 27.0%. The net margin is 29.8% against a median of 22.3%. Margin stability is 0.123 over the year to 2025-10-31. The key weakness is returns: ROIC is 10.5% against a WACC of 10.8%, a reported ROIC minus WACC of -0.4 points, rated neutral. ROIC has a five-year median of 6.5%. Return on equity is 12.3%. The DuPont split for the year to 2025-10-31 shows a net margin of 20.6%, an asset turnover of 0.23 and an equity multiplier of 1.42, so leverage does little to inflate the return.

Growth

Growth is green, with a five-year revenue CAGR of 14.5% and a ten-year CAGR of 12.4%. The three-year revenue CAGR is -2.8%, so recent sales have contracted. EPS compound growth is -4.6% over three years, 6.8% over five and 7.6% over ten. Free cash flow per share grew at 6.1% over three years, 11.7% over five and 13.7% over ten. Revenue grew in 6 of the 10 comparable years. Analysts expect next-year EPS growth of 28.1%, which is far above the historical rates.

Valuation

Valuation is red. Every multiple trades above its ten-year median: P/E 46.2 against 35.3 (premium 30.9%), EV/EBITDA 28.2 against 20.1 (premium 40.0%), P/FCF 38.7 against 26.7 (premium 45.0%), P/S 13.8 against 7.4 (premium 86.3%) and P/B 5.7 against 3.1 (premium 85.0%). The DCF gives 212.06 USD per share at a discount rate of 11.2%, with a five-year growth input of 14.5% and a terminal growth of 2.5%. The fair value band is 193.69 to 290.53 USD, and the fair value from historical multiples is 272.16 USD. These are estimates built on fixed assumptions, not price targets. The reverse DCF implies 20.2% growth. The dividend yield is 1.07% and the payout on free cash flow is 41.4%.

Risks

The weakest number is ROIC of 10.5% against a WACC of 10.8%. If returns stay at this level, the company does not earn more than its cost of capital, which limits the value of further growth. The share count's five-year CAGR of 5.9% dilutes each shareholder's claim on cash flow, and the free cash flow after SBC of 4.59 billion USD is what remains for owners. The valuation premiums are the largest exposure: a price 38.7% above the fair value midpoint's reverse view would need growth of 20.2% a year, and a slowdown in the estimated 28.1% EPS recovery would weaken that case. The DCF terminal value makes up 51.2% of the DCF, so the result depends heavily on long-term assumptions. The Beneish M-score is not available. This analysis has no debt maturity schedule and no revenue breakdown by segment, so refinancing risk and the mix of end markets cannot be assessed.