Why Analog Devices Dropped This Morning

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Analog Devices  fell 3% this morning after Wells Fargo downgraded the semiconductor company from outperform to market perform.

So what: Along with the downgrade, analyst David Wong planted a valuation range of $48-$57 on the stock, bracketing the previous closing price of $50.93. While Wong remains optimistic about a rebound in semiconductor demand, he believes Analog's valuation already take into account much of the upside.

Now what: Wells thinks Analog's risk/reward trade-off is pretty balanced at this point. "We expect that semiconductor demand will pick up as 2014 progresses and that chip industry growth for the full-year 2014 might be in the range of 8-12%, representing acceleration from 4-6% growth in 2013E," noted Wells. "Nevertheless, we think that an expectation of improving fundamentals is already to a large extent assumed in the stock prices of many chip stocks, including ADI." With Analog up about 20% from its 52-week lows and trading at a 20-plus P/E, it's tough to disagree with Wells' cautious stance.

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The article Why Analog Devices Dropped This Morning originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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