Cirrus Logic Inc.

CRUS Details

Cirrus Logic Inc. (NASDAQ: CRUS) is a provider of low-power, high-precision signal processing systems for consumer products. The company is engaged in creating innovative user experiences for mobile and consumer applications. The company operates under two product lines, namely, the Audio segment and the High-performance Mixed-signal segment. As of May 12, 2021, the company’s market capitalization stood at USD 4.19 billion.

Elliptic labs collaboration: On May 4, 2021, Elliptic Labs (Euronext Growth: ELABS.OL) declared its collaboration with Cirrus Logic, Inc (NASDAQ: CRUS) to optimize its AI Virtual Smart Sensor Platform on Cirrus Logic’s latest smart boosted amplifiers for mobile and PC/Laptops customers. These virtual smart sensors will provide future generation smart devices to be operated on cirrus logic’s audio amplifier technology. The development is in line with the company's endeavor to increase share in smartphones as well as adjacent markets. 

Q4FY21 Results: The company reported a 39.57% decline in net sales to USD 293.53 million in Q4FY21 (three months ended March 27, 2021) compared to that of USD 485.79 million in Q3FY21 (three months ended December 26, 2020). Revenues from the Audio segment decreased by 38.24% to USD 235.82 million in Q4FY21 compared to USD 381.88 million in Q3FY21. The company’s Q4FY21 revenue results were affected by supply constraints. The company reported a decline in net income to USD 25.28 million in Q4FY21 compared to USD 114.36 million in Q3FY21. As of Q4FY21, the company had cash and cash equivalents of 442.16 million. The company utilized USD 45 million to buy back 517,567 shares at an average price of USD 86.92 during the quarter.

CRUS Growth Drivers (Source: Company’s Presentation, April 29, 2021)

Key Risks: For FY18, FY19, and FY20, Apple, Inc. constituted around 81%, 78%, and 79%, of the company’s total sales, respectively. In these years, its top 10 largest end customers represented approximately 92%, 91%, and 93%, respectively, of its net sales. Partial or total loss of business from major customers might result in a considerable decline in revenues for the company. It could also impact the financial as well as operational affairs of the company. 

Outlook: For Q1FY22, CRUS expects its revenues to be in the range of USD 240 million and USD 280 million. The company is forecasting GAAP gross margin to be in the range of 49% to 51%. The combined R&D and SG&A expenses are projected to be in the range of USD 120 million to 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

Data Source: Refinitiv, Thomson Reuters, 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, Thomson Reuters)

Stock Recommendation: CRUS has declined by 17.40% in the past 3 months and is currently leaning towards the slightly lower band of the 52-week range of USD 55.30 to USD 103.25. We have valued the stock using the Price/Earnings multiple based relative valuation method and arrived at a target price of USD 79.33. Considering the correction in the stock price in the past three months, progress on growth in adjacent markets, solid margins, and decent fundamentals, we recommend a “BUY” rating on the stock at the closing price of USD 72.28, down by 4.28% as of May 12, 2021.