Cirrus Logic, Inc.

CRUS Details

Cirrus Logic, Inc. (NASDAQ: CRUS) provides low-power, high-precision signal processing solutions to electronics manufacturers globally. CRUS is focused on creating cutting-edge user experiences for mobile and consumer products. Its operating segments are Audio Products and High-Performance Mixed-Signal Products. As of October 27, 2021, the company's market capitalization stood at USD 4.59 billion.

Latest News:

• Inorganic Growth Initiatives: On July 20, 2021, CRUS completed the acquisition of Lion Semiconductor, a California-based producer of ultra-fast battery charger integrated circuits (ICs), for a cash consideration of USD 335 million. The transaction is expected to be accretive on both GAAP and non-GAAP EPS and expected to generate USD 60 million in revenues during the remainder of FY22.

Q1FY22 Results:

• Double-Digit Growth in Topline: The company reported YoY growth of 14.30% in net sales to USD 277.25 million in Q1FY22 (ended June 26, 2021) from USD 242.57 million in Q1FY21 (ended June 27, 2020). The Audio Products segment, representing 78.40% of the total revenue in Q1FY22, improved 5.28% YoY, whereas the High-Performance Mixed-Signal Products segment expanded 65.81% YoY.
• Decline in Net Income: The company's net income decreased to USD 17.21 million in Q1FY22 from USD 18.21 million in Q1FY21.
• Cash and Debt Position: As of June 26, 2021, the company had cash and cash equivalents of USD 445.63 million and no outstanding debt.

Risks:

• Customer Concentration Risk: In Q1FY22, CRUS' largest customer Apple Inc., represented 72% of its net sales. Further, the top ten customers accounted for 90% of CRUS' sales during the quarter. Hence, the loss of any of these key customers could hurt its financials.
• Exchange Rate Fluctuation Risk: CRUS conducts its business in many currencies other than the USD, predominantly GBP, thus exposing it to currency fluctuations.

Outlook:

• Estimated Revenue & Gross Margin: As of Q1FY22, CRUS forecasts its Q2FY22 revenue to range between USD 430 – 470 million, with a GAAP gross margin of 50% – 52%.
• Operating Expenses: It also expects to incur combined R&D and SG&A expenses in the range of USD 135 – 141 million.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY1 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 decreased 16.01% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 66.17 to USD 103.25. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 45.79. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 98.20.

Considering the correction in the stock price in the past nine months, encouraging outlook, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 80.32, up 0.70% as of October 27, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.