Cirrus Logic, Inc.

CRUS Details

Cirrus Logic, Inc. (NASDAQ: CRUS) designs and manufactures low-power, high-precision signal processing solutions to electronics manufacturers around the globe. It specializes in developing cutting-edge user experiences for mobile and consumer products. The company's product lines are divided into two categories: audio and high-performance mixed-signals. As of March 27, 2021, CRUS held approximately 3,670 pending and issued patents globally. As of July 21, 2021, the company’s market capitalization stood at USD 4.77 billion.

Acquisition of Lion Semiconductor: On July 8, 2021, CRUS stated that it had reached an agreement to purchase Lion Semiconductor, a California-based producer of ultra-fast battery charger integrated circuits (ICs), for USD 335 million in an all-cash transaction. Between the completion of the transaction and the end of FY22, Lion is projected to be immediately accretive to GAAP and non-GAAP profits per share, generating about USD 60 million in sales.

FY21 Results: The company reported a 6.87% increase in net sales to USD 1.37 billion in FY21 (ended March 27, 2021) compared to USD 1.28 billion in FY20 (ended March 28, 2020) primarily due to an increase in content on smartphones. CRUS reported a 1.36x YoY increase in net income to USD 217.34 million in FY21 vs. USD 159.50 million in FY20. As of March 27, 2021, the company stood with cash and cash equivalents (including marketable securities) of USD 497.86 million with no outstanding debt. During FY21, CRUS utilized USD 110.0 million to repurchase approximately 1.5 million shares at an average price of USD 75.72.

Key Risks: In FY21, FY20, and FY19, Apple, Inc. purchases (via several contract manufacturers) accounted for roughly 83%, 79%, and 78%, respectively, of total revenues. In addition, the company’s top ten customers accounted for around 93%, 93%, and 91% of its net sales during these years, respectively. As a result, a partial or complete loss of business from large clients might harm the company's financial and operational activities.

Outlook: For Q1FY22, CRUS expects its revenues to be in the range of USD 240 to USD 280 million. The company is forecasting its gross margin to be around 49% to 51%. The combined research & development (R&D) and selling, general, and administrative expenses (SG&A) expenses are projected to range between USD 120 and USD 126 million, including USD 15 million in stock-based compensation expense and USD 3 million in amortization of acquired tangible assets.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY22E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CRUS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CRUS’ share price has declined by 15.74% in the past six months and is currently leaning towards the slightly higher band of the 52-week range of USD 55.84 to USD 103.25. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 58.30. We have valued the stock using the Price/Earnings multiple-based relative valuation method and arrived at a target price of USD 90.84. Considering the company’s growth prospects, strategic acquisition, solid margins, low leverage, and boosting fundamentals, we recommend a “Hold” rating on the stock at the closing price of USD 84.63, up by 1.98% as of July 21, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.