Jthe share price of Cirrus Logic (NASDAQ: CRUS) is down 20% so far in 2022, but shares of the chipmaker started gaining momentum this month thanks to a rally in semiconductor stocks.
The PHLX Semiconductor Sector the index is up 9% in July 2022, and Cirrus stock has trailed gains of 6% so far this month. The company, known for supplying audio and power management chips to the smartphone giant Apple (NASDAQ:AAPL)could get a big hit in the arm in a few weeks when it reports its first-quarter fiscal 2023 results on Aug. 2.
Let’s see why this might be the case.
Cirrus could deliver stronger than expected results
Wall Street is seeking $366.7 million in revenue and $0.83 per share in earnings from Cirrus Logic. But the company had forecast revenue between $350 million and $390 million for the fiscal first quarter, with a midpoint of $370 million. It seems that the lukewarm environment for smartphone sales this year has led analysts to temper their expectations of Cirrus.
This is not surprising as smartphone sales were down 11% in the first quarter of 2022 compared to the year-ago period, according to Canalys. The overall smartphone market is expected to contract by 3% in 2022, according to another estimate.
Cirrus earned 79% of its fiscal 2022 revenue from the sale of chips used in Apple’s iPhones and other products, so it’s no surprise analysts aren’t bullish on the upcoming quarterly report.
Assuming Cirrus hits the midpoint of its guidance range, its revenue will jump 33% year over year. Meanwhile, analysts expect a 54% year-over-year increase in earnings per share from Cirrus. Chief Financial Officer Venkatesh Nathamuni noted on May’s earnings conference call that “expected revenue growth is primarily driven by projected increases in demand for certain components shipped in smartphones, and to a lesser extent by a raise [average selling prices] compared to the previous year.”
Rising average selling prices for Cirrus components could help it achieve the ambitious earnings growth analysts are looking for. It’s also worth noting that the company’s biggest customer, Apple, could give Cirrus a big boost to results. That’s because the iPhone maker is doing well despite the slowdown in the smartphone space.
Supply chain sources suggest that iPhone 13 production at one of the factories increased year-over-year in July. This is a bit surprising as sales of older iPhones are slowing ahead of a new generation launch. Additionally, Cirrus might also issue some sane advice given that Apple is said to have placed more orders for its next-gen iPhones compared to iPhone 13 units in 2021.
All of this puts Cirrus in a good position to deliver a strong set of results, especially as it now pulls in more revenue from each unit of the iPhone. However, that’s not the only reason the stock is worth buying right now.
More reasons to go long
Cirrus Logic is working on diversifying its business. Whether integrating Android smartphone OEMs (original equipment manufacturers) or moving beyond the traditional audio business into the high-performance mixed-signal (analog and digital) market, Cirrus Logic seems to be making the right decisions to ensure long-term growth. .
The high-performance mixed-signal business, for example, could present a usable available market of $4.2 billion for Cirrus by 2026. This would exceed its usable available market of $3.1 billion than the audio activity should create by then. Given that Cirrus generated $1.78 billion in revenue in the last fiscal year, it’s obvious that it has plenty of room for growth.
Unsurprisingly, analysts expect earnings to grow at a double-digit annual rate over the next five years. That would be a big improvement over the performance of the last five years. All of this indicates that Cirrus Logic is a value play right now given its price-to-earnings ratio of just 13.6. It is well below Nasdaq-100‘s multiple of nearly 25, and investors may want to grab this semiconductor stock at this multiple before it climbs higher.
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Harsh Chauhan has no position in the stocks mentioned. The Motley Fool holds positions and recommends Apple. The Motley Fool recommends Cirrus Logic and recommends the following options: $120 Long Calls in March 2023 on Apple and $130 Short Calls in March 2023 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.