Barclays upgrades Analog Devices as industrial recovery takes shape

Investing.com -- Barclays upgraded Analog Devices to Overweight in a note Thursday, arguing the company is best positioned to benefit from an improving industrial backdrop and carries “the cleanest operating model and balance sheet” in the group.

Analyst Tom O’Malley said purchasing manager indexes have finally provided “the PMI inflection needed for some broader Industrial recovery,” though he cautioned that scars remain from the last cycle.

Barclays noted that inventories at distributors have normalised, but “company inventories remain historically high impacting loadings and utilization, and impairing margins.”

Against that backdrop, the bank sees emerging growth tied to data-center trends but remains selective across analog names. O’Malley wrote that ADI has “the most leverage to Industrial exposure,” making it the most attractive way to position for an upturn.

By contrast, Barclays initiated Microchip at Equal Weight, noting the company is exposed to networking and memory demand from AI data-center buildouts but faces challenges including “a difficult spot from a leverage perspective” and “share loss in low end MCUs.”

The bank assigned the stock an $80 price target.

Barclays also started coverage of ON Semiconductor at Equal Weight with a $75 target, citing upside from rising data-center dollar content in the move to 800-volt architectures.

However, O’Malley said the stock cannot “break out” without a broader recovery in auto demand, which “remains mum for foreseeable future.”

Barclays added that each company in the group faces at least one industry-specific challenge, reinforcing its preference for ADI’s mix of industrial leverage and balance-sheet strength.

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