$61.84
$202.25
bear $61.84
base $127.25
bull $202.25
margin of safety $75.00
market price* $395.44
BUSINESS. Analog Devices designs analog, mixed-signal and power chips that connect real-world signals (sensors, motors, batteries, radio) to digital electronics. It sells thousands of products with long life cycles to a broad customer base. Fiscal 2025 (ended November 1, 2025) revenue was $11.0 billion: Industrial 45%, Automotive 30%, Consumer 13%, Communications 13%. By customer location: United States 29%, China 26%, Europe 21%, Rest of Asia 13%, Japan 9%. The Linear Technology (2017) and Maxim (2021) acquisitions tripled the company, so we measure the business from fiscal 2022, the first full year with Maxim. HOW WE MEASURED EARNINGS. We start from operating cash flow, remove swings in receivables, inventory, payables and taxes, subtract stock-based pay as a real cost, and subtract only the capital spending needed to maintain the business (spending that matches revenue growth is treated as discretionary). Fiscal 2023 capital spending of $1.26 billion, a one-off program the company described as enhancing global resiliency, is counted in full as a cost, which makes that year conservative. Because the company borrows, we add back cash interest (about $256 million in fiscal 2025) to see what the business earns before its lenders, value that, and subtract the debt separately. Before interest, owner earnings per share were $9.11 (fiscal 2022), $8.15 (2023), $5.88 (2024) and $7.69 (2025). About $1.6 billion a year of amortization of acquired Linear and Maxim intangibles is a non-cash charge already excluded from cash flow; we do not let the earnings path rise on the strength of that add-back, so the base case credits no growth and the bear case fades. FISCAL 2026 SO FAR. The quarterly filing of August 19, 2026 shows nine-month revenue of $10.8 billion against $7.9 billion a year earlier (+36%), with the third quarter at $4.02 billion (+40%), and nine-month net income of $3.35 billion against $1.48 billion. Working capital absorbed about $0.94 billion over nine months as inventory and receivables built with sales; we treat that as timing. Before interest, nine-month owner earnings were about $9.27 per share and the third quarter alone about $3.38. If the fourth quarter matches the third, fiscal 2026 would be about $12.65 per share. This is a little stronger than our September estimate, which assumed the fourth quarter would only match the first-half average. EARNINGS LEVEL USED. The median of fiscal 2022 through fiscal 2026 (estimated), which is $8.15 per share a year before interest. That window covers the 2022 peak, the 2024 downturn (revenue fell 23%, from $12.3 billion to $9.4 billion) and the current recovery, a full cycle of the merged business. Growth check: owner earnings per share grew 34% in the last completed year (fiscal 2025); the base case assumes 0% from the $8.15 level, below that trailing rate. CASES. Each case includes the fourth quarter of fiscal 2026 (about $3.38 per share, nearly complete), is valued before debt, and then has net debt of $11.96 per share subtracted.
Base case: $8.15 per share a year, flat indefinitely. Support: owner earnings were positive in every year we can measure back to fiscal 2016, including the 2024 trough, and the portfolio is broad with long product lives. No growth is credited: share gains, new products, AI or data-center demand and market expansion are not in hand, and buybacks have been largely offset by stock compensation. The business is worth $139.21 per share, it owes $11.96, leaving $127.25.
Bear case: a downturn like fiscal 2023-2024 (pre-interest cash flow per share fell 28% in a year) hits now and holds at the $5.88 trough for two years; recovery reaches only $6.50, below every non-trough year of the merged business, reflecting erosion in China (26% of revenue, $2.86 billion in fiscal 2025) as local suppliers substitute, for the remaining eight years; then earnings fade in a straight line to zero over twenty years as acquired technology ages. The business is worth $73.80 per share, it owes $11.96, leaving $61.84. Even at the trough, business cash flow of about $2.9 billion a year is roughly eight times the current interest bill of about $0.35 billion, so the debt is carried.
Bull case: the fiscal 2026 level of about $12.65 per share proves durable and stays flat. Evidence: three straight quarters of 30% to 40% revenue growth with capital spending only about 3.6% of revenue. No growth beyond that level is credited. The business is worth $214.21 per share, it owes $11.96, leaving $202.25. DEBT. At August 1, 2026 the company owed $8.22 billion of fixed-rate notes at face and $1.01 billion of commercial paper, $9.22 billion in all, against $2.33 billion of cash and short-term investments, a net $6.90 billion. Most notes carry coupons well below 6% (for example $1.0 billion due 2031, $750 million due 2041 and $1.0 billion due 2051, all at low fixed rates; the company's own fair-value table put the 2051 notes at about two-thirds of face). The present value of that below-market cost is about $1.05 billion, which lowers the debt figure to $5.85 billion, or $11.96 per share on 488.8 million diluted shares. About $1.34 billion of notes is due within a year, including $900 million in December 2026; cash on hand and one quarter's cash flow cover it. Operating leases are not counted as debt. WHAT CHANGED SINCE OUR SEPTEMBER 29, 2026 ESTIMATE. The middle is little changed ($130.07 to $127.25), mainly because more notes moved into the current portion and we credited slightly less for their low coupons. The bull case rose ($196.27 to $202.25) because we now base the fourth quarter on the stronger third-quarter run rate. The bear case rose ($57.30 to $61.84): we previously held the trough for ten straight years, which no history of this business supports; we now model a two-year trough like fiscal 2024 followed by a partial recovery that still sits below every non-trough year since the Maxim merger. WHAT COULD MAKE THIS WRONG. The value is too low if the fiscal 2026 step-up is permanent and keeps compounding. It is too high if a downturn deeper or longer than 2023-2024 arrives, if China demand or access falls sharply, or if the roughly $0.9 billion of working capital built in fiscal 2026 does not turn back into cash. We could read only the reported figures of the latest quarterly filing, not its text. MARGIN OF SAFETY PRICE: $75. How sure are we of the earnings level? Fairly sure: the merged business has a four-year record through a full cycle and has never fallen below $5.88 per share before interest. The worst plausible event is a long, deep industrial and automotive slump combined with loss of much of the China business; the company would survive it, because its debt is long-dated, fixed-rate and covered many times even at the trough, and it has no dependence on a single customer. If we are wrong about the durability of earnings and China, the shares are worth roughly the bear case, about $62. The business pays about $4.2 per share a year in dividends during the holding period, roughly 5.6% of a $75 price. From $75, a three-year move toward the base value plus dividends implies more than 20% a year; the bear case implies a loss of about 17% before dividends, and a recovery to normal earnings, which this business has delivered after every past downturn, would imply a high return again. The margin-of-safety price is set no higher because this is a cyclical business at the top of a sharp upswing, where the near-term direction of earnings is down more often than up.