“I think Wall Street has made a poor assessment of Analog Devices ,” says tech guru Paul McWilliams. Here’s a look at from his top notch Next Inning newsletter.

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Analog Device’s top line guidance came in a bit below Wall Street expectations. However, I think the problems are between the Hudson and East Rivers and not in Norwood, MA, the home town of ADI.

“What Wall Street appears to be missing is that since ADI has sold off some of its lower profit business units, its seasonal sales patterns have changed. ADI is now again driven by industrial market sectors much more than it was even just last year.

“Therefore, its conservative guidance of flat to up 3% sequentially shouldn’t have been a big surprise nor a cause for concern. As a matter of fact, with its minimal exposure to PC and consumer markets, I think flat to up 3% is pretty good.

“What Wall Street would be better to focus on are the operational improvements ADI has made. In its July quarter, ADI improved its pro forma operating margin to 26.5% from 26.2% last quarter and again reduced its inventory, which sits now at the lowest level we’ve seen since 2004.

“If we look back at last year and include the results from divested businesses, its operating margin was only 22.8%.

“In addition to this, ADI has nearly replaced all of the low margin revenues from divested businesses with higher margin revenues. Including divested businesses in the July 2007 quarter, ADI reported revenues of $680.3M.

“Excluding those businesses in the July 2008 quarter, ADI reported sales of $659M, a very modest 3% decline. However, when we look at pro forma gross profit dollars, ADI generated $403.7M in the July quarter this year versus $391.1M last year. If this is bad, I want more bad.

“In my prior review of the stock I wrote that it was time to hold off on accumulating shares of ADI due to the price appreciation we had seen from buy recommendations made earlier in 2008 .

“I now believe it’s now time to accumulate shares again at the current price of $28.91 and follow through to as high as $31.”