Analog Devices moved to top semi pick at Citi as firm expects sector could decline 30%
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Analog Devices (NASDAQ:ADI) is now the top semiconductor stock at investment firm Citi, as it believes the sector could drop another 30% due to a slowing economy and inventory buildup.
Analyst Christopher Danely noted that Analog Devices (ADI) is now the firm's top pick "given its defensive nature," but other stocks that are in favor include Micron Technology (MU), On Semiconductor (ON) and Global Foundries (GFS), as they could see "margin upside."
Of the 30%, 20% could come from "downside to estimates" and the remaining 10% could come from multiple contraction, based on past recessions. 
Analog Devices (ADI) shares fell more than 2% to $165.31 in late-day trading on Friday, while Micron Technology (MU), On Semiconductor (ON) and Global Foundries (GFS) also fell, led by a 7% decline in Micron. 
Danely noted that expected downside due to lower PC and hpne demand, as well as a slowing economy are what caused the firm to bring down estimates. As a group, Citi now sees 2023 earnings estimates on average 14% below the consensus, with an average year-over-year decline of 5%. 
It's also likely that consensus estimates will go down for a couple of quarters, even impacting end markets, such as automotive, which are currently strong. 
Late last month, Analog Devices (ADI) said it would collaborate with Synopsys (SNPS) to provide model libraries for DC/DC ICs and Module regulators with Synopsys' simulation tool, Saber.