How High Can Cirrus Logic Fly?

Shares of Cirrus Logic (Nasdaq: CRUS  ) hit a 52-week high today. Let's look at how it got here and whether clear skies are ahead.

How it got here
Cirrus Logic kicked off the year with a healthy preliminary earnings report, jumping 12% when it said its official results would top expectations. The company continues to ride Apple's (Nasdaq: AAPL  ) success as the sole supplier of audio codecs. This announcement was a good hint that Cupertino would similarly follow up with a blowout quarter, which it did.

Fast-forward to this month, and the tables turned. Despite concerns that Apple would miss iPhone estimates in the second quarter, which would be bad news for Cirrus Logic, Apple again reported a monster quarter. This time, the Mac maker was the one giving hints as it reported first, and the 35 million iPhones that it sold bode well for Cirrus Logic's imminent earnings release, sending shares up by 12% yesterday.

Following up that rally, Cirrus Logic is jumping by 14% more today after its earnings report. The figures came in mostly in line with expectations, and next quarter's guidance was a tad light. Here's why the bulls are out today: "Due to the timing of various product introductions later this year, the company expects to transition to a sharply higher level of revenue beginning in the September quarter." (Emphasis added.) That's a not-so-subtle clue that the company will again be in the next iPhone, which is expected to be a major upgrade.

How it stacks up
Last quarter, 70% of revenue came from Apple, so let's see how Cirrus stacks up with fellow iSuppliers.

CRUS Chart

CRUS data by YCharts.

Let's add some fundamental metrics for more insight.

Company

P/E (TTM)

EPS Growth (5-Year Rate)

Net Margin (TTM)

ROE (TTM)

Cirrus Logic 9.8 36.4% 41.1% 47.4%
Qualcomm (Nasdaq: QCOM  ) 22.1 13.4% 28.1% 17.3%
TriQuint (Nasdaq: TQNT  ) 19.7 12.6% 5.4% 5.4%
OmniVision (Nasdaq: OVTI  ) 12.1 6.1% 10.4% 13.5%

Source: Reuters. TTM = trailing 12 months. Figures are through last night's close.

This adds a lot of context to Cirrus Logic's massive outperformance over the past five years. It has enjoyed higher profit growth, higher margins, and higher return on equity, all while being cheaper than peers. One note of caution, though -- Cirrus has benefited all across the past year from income taxes that actually added to its bottom line. So you're best off looking at its non-GAAP profits.

Qualcomm is the largest of the bunch, and the proportional upside from supplying basebands is smaller relative to the rest of its business. TriQuint has underperformed and even forecasted a net loss next quarter because of "weak revenue and higher litigation costs" in its own earnings release last night. OmniVision is still hoping to win the primary camera spot in the next iPhone, after losing it last year.

What's next
Cirrus Logic's seat in Apple products has remained unchanged for years, so it should continue riding Apple's success. I think still has upside from here, so I'm also giving it an outperform CAPScall today.

Interested in more info on Cirrus Logic? Add it to your watchlist by clicking here.

Fool contributor Evan Niu owns shares of Apple and OmniVision Technologies, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Cirrus Logic, Qualcomm, and TriQuint Semiconductor. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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