Trade of the Day: ADI Stock on the Verge of a New Sell Signal

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Analog Devices, Inc. (ADI) — On Feb. 17, ADI stock closed 1.3% higher after the manufacturer of integrated circuits used in digital and analog signal systems beat analysts’ estimates for its fiscal first quarter.

Adjusted earnings of 56 cents per share beat the Zacks consensus estimate by 3 cents. Revenue of $769.4 million also beat estimates, but sales declined 0.3% year over year and 21.4% from the prior quarter. Management cited weakness in the consumer market, especially in the portable segment.

Following the earnings announcement, S&P Capital IQ Equity Research maintained its “Sell” rating on ADI stock and its 12-month price target of $50, but reduced its earnings estimates. Its analysts lowered their fiscal 2016 operating EPS forecast by 3 cents to $2.81 and their fiscal 2017 estimate by 16 cents to $3.27.

Capital IQ warns revenues will decline 3.3% in fiscal 2016, following a 20% increase in the previous year, and that orders are likely to “remain lumpy given seasonal trends.”

After making a high at $68.97 on June 1, ADI stock fell into a bear market. The bearish resistance line connects the June high to the highs in October and November, as well as Friday’s high near $59.

ADI stock broke above its 200-day moving average on Friday but is having difficulty holding above it. A close below this important line would trigger a new sell signal.

Traders should sell ADI stock short at $58 with a downside target of $50 for a potential return of almost 14%. A stop-loss order should be entered at $60.

Analog Devices pays a dividend of 42 cents per share for a current forward annual yield of 2.9%, and shares are expected to go ex-dividend in late May. Keep in mind that if you hold shares short through the ex-dividend date, you will be responsible for covering it.

 

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/analog-devices-inc-adi-stock-trade-of-the-day-2/.

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