The stock price of Cirrus Logic (CRUS +0.00%) is down 20% so far in 2022, but shares of the chipmaker have started gaining some momentum this month thanks to a rally in semiconductor stocks.
The PHLX Semiconductor Sector index is up 9% in July 2022, and Cirrus stock has tagged along with gains of 6% so far this month. The company, which is known for supplying audio and power-management chips to smartphone giant Apple (AAPL +0.33%), could get a nice shot in the arm in a couple of weeks when it releases its fiscal 2023 first-quarter results on Aug. 2.
Let's see why that might be the case.
NASDAQ: CRUS
Key Data Points
Cirrus could deliver stronger-than-expected results
Wall Street is looking for $366.7 million in revenue and $0.83 per share in earnings from Cirrus Logic. But the company had guided for revenue between $350 million and $390 million for the fiscal first quarter, the midpoint of which stands at $370 million. It seems that the tepid smartphone sales environment this year has led analysts to temper their expectations from Cirrus.
That's not surprising as smartphone sales were down 11% in the first quarter of 2022 as compared to the prior-year period, according to Canalys. The overall smartphone market is expected to contract by 3% in 2022, according to another estimate.
Cirrus got 79% of its fiscal 2022 revenue from selling chips used in Apple's iPhones and other products, so it is not surprising that analysts aren't upbeat about the upcoming quarterly report.
Assuming Cirrus hits the midpoint of its guidance range, its revenue will jump an impressive 33% year over year. Meanwhile, analysts are looking for a 54% year-over-year jump in Cirrus' earnings per share. Chief financial officer Venkatesh Nathamuni pointed out on the May earnings conference call that "expected revenue growth is primarily driven by anticipated increases in demand for certain components shipping in smartphones, and to a lesser extent higher [average selling prices] compared to the prior year."
The increase in average selling prices of Cirrus' components could help it achieve the ambitious bottom-line growth that analysts are looking for. It is also worth noting that the company's largest customer, Apple, could give Cirrus' results a nice boost. That's because the iPhone maker is reportedly doing well despite the slowdown in the smartphone space.
Supply chain sources suggest that iPhone 13 production from one of the factories had increased year over year in July. That is a tad surprising as older iPhone sales slow down before the launch of a new generation. What's more, Cirrus could issue healthy guidance as well given that Apple has reportedly placed more orders for its next-generation iPhones as compared to iPhone 13 units in 2021.
All this puts Cirrus in a nice position to deliver a solid set of results, especially considering that it is now getting more revenue out of each unit of the iPhone. This, however, is not the only reason the stock is worth buying right now.
More reasons to go long
Cirrus Logic is working on diversifying its business. From bringing Android smartphone OEMs (original equipment manufacturers) on board to moving beyond the traditional audio business into the high-performance mixed-signal (both analog and digital) market, Cirrus Logic seems to be making the right moves to ensure long-term growth.
The high-performance mixed-signal business, for instance, could present a $4.2-billion serviceable available market for Cirrus by 2026. That would be higher than its $3.1 billion serviceable available market that the audio business is expected to create by then. Given that Cirrus generated $1.78 billion in revenue last fiscal year, it is evident it has a lot of room for growth.
Not surprisingly, analysts expect earnings to grow at an annual rate in the double digits over the next five years. That would be a big improvement over the past five years' flat bottom-line performance. All this indicates that Cirrus Logic is a value play right now considering its price-to-earnings ratio of just 13.6. That's well below the Nasdaq-100's multiple of nearly 25, and investors may want to grab this semiconductor stock at this multiple before it moves higher.
