Should You Buy It? ADI

Analog Devices(ADI Quote) fell about 4% Wednesday, closing at $33.35, even though the integrated circuit-maker posted better than expected earnings the night before.

The company earned 44 cents a share in the fiscal second quarter (ending April), which was three cents ahead of the consensus analyst estimate. Revenue grew 6% from the previous year to $649.3 million, and also came in $22.1 million ahead of expectations. Analog's fiscal third quarter (ending July) guidance for earnings of 43 cents to 45 cents a share on revenue of $650 million to $665 million was also higher than previous expectations.

This upside was driven by revenue from the company's two largest business segments -- industrial and communications -- which grew 10% and 20% year-over-year, respectively. Analog also benefits from a weak dollar, as it generates about 75% of its revenue overseas.

However, the company's order backlog was flat sequentially at the end of the quarter, leading some investors to question management's visibility. Analog also said that its gross margin could level off around 61% for the next couple of quarters because of seasonal business patterns, after gaining 4 percentage points over the past year.

Wave Goodbye to ADI

With that in mind, I'm here to answer readers' questions: Should you buy it? Is Analog Devices an attractive value following this post-earnings decline, or should readers focus elsewhere?

After Wednesday's decline, the stock still sits 28% above its January lows. Analog shares are valued at 19.5 times expected full-year earnings of $1.72 a share. This is a premium to the 15% earnings growth targeted for fiscal 2008 (ending October), though a discount to the average 22.1 times earnings multiple of its peers.