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Cirrus Logic Rides on Products Expansion, Risks Persist

Zacks

At times, it is prudent to retain certain stocks that have enough potential but are weighed down by tough market conditions. Cirrus Logic Inc. CRUS seems to be one such stock, which investors should retain if they are looking to reap long-term benefits. Though the stock is facing a few headwinds at the moment, these are transitory in nature. There is enough scope for this Zacks Rank #3 (Hold) company to rebound in the long run.

Factors In Favor of Cirrus Logic

Cirrus Logic is a premier supplier of high-performance analog circuits and advanced mixed-signal chip solutions. The company has broadened product portfolio. Its chips are used in DVD players/recorders, disc drives, sound chips for computers, XBox, professional audio, mobile technologies and voice transmission. Notably, the company is a major chipset provider to Apple Inc. AAPL and Samsung as it generates a significant portion of revenues from them. Consequently, we believe that new products are likely to drive sales in the near term.

Notably, Cirrus Logic reported better-than-expected second-quarter results and provided encouraging third-quarter revenue guidance. This can be attributed to higher adoption of its products and strength in customer relationships.


Continued investments in the audio segment have also helped the company to come up with innovative products from time to time. This aids it in attracting new customers and brings in additional revenues. Additionally, expansion in the LED market continues to drive growth.

The company also has an expected EPS growth rate of 9.1%. Notably, the stock has delivered positive earnings surprises in the trailing four quarters with an average beat of 18.3%.

Moreover, from a valuation perspective, the stock looks very attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate, which signifies a huge upward potential. Cirrus Logic currently trades at a forward P/E of 12.63x as compared with the industry group average of 40.20x.

Factors Against Cirrus Logic

Notably, shares of the company have gained 2.6% in the last one year, significantly underperforming the industry’s growth of 48.3%.

As Cirrus Logic generates a significant portion of revenues from Apple, there is always an inherent risk of losing an Apple design contract, which will significantly hurt financials. Moreover, sluggish economic growth, as well as IT spending may affect performance, going forward.

Furthermore, the company faces competition from the likes of Texas Instruments Inc. TXN and STMicroelectronics N.V. STM, which remains a concern.

Currently, Cirrus Logiccarries a Zacks Rank #3 (Hold).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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