August 19, 2009 / 1:00 PM / 10 years ago

UPDATE 1-Three brokerages raise targets on Analog Devices

Aug 19 (Reuters) - Three brokerages raised their price targets on Analog Devices Inc ADI.N, and said gross margins for the chipmaker are poised to expand in the coming quarters.

On Tuesday, Analog Devices reported better-than-expected quarterly results and forecast a strong fourth quarter, but saw its shares dip in trading after the bell as third-quarter gross margins fell short of estimates. [ID:nN18438616]

However, the company, which competes with Broadcom Corp BRCM.O, Texas Instruments Inc TXN.N and STMicroelectronics NV (STM.PA), forecast a slight improvement in gross margins in the current quarter.

“We are modeling that the company’s gross margins bottom in the July 2009 quarter and will expand by 540 bps over the next five quarters, driven by cost savings,” Morgan Stanley said in a note to clients.

The company has cut its quarterly operating expenses by $53 million from peak levels last year, but there is further opportunity for improvement, said Morgan Stanley, which raised the price target on the stock to $31 from $26.

Separately, Canaccord Adams said it expects the company’s consumer, industrial and communications segments to grow, with gross margin expansion at its industrial business.

The brokerage raised its price target on the stock to $30 from $25.

Analog Devices remains a favoured secular pick, said Citigroup analyst Terence Whalen, who raised the price target on the stock to $36 from $30 on higher estimates.

Shares of Norwood, Massachusetts-based Analog Devices were trading down 4 percent at $26.01 before the bell. They closed at $27.22 Tuesday on the New York Stock Exchange. (Reporting by Manasi Phadke in Bangalore; Editing by Deepak Kannan)

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