CRUS Stock Forecast: Why Cirrus Logic Is Worth Betting On

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

 

Summary:

  • The rumor of Apple working on cheaper iPhones is a promising boost for Cirrus Logic.
  • Cheaper iPhone models with larger screen displays can ignite a super-cycle.
  • Those hold-outs who did not upgrade to the $999 iPhone X, may do so when there’s a more affordable version.
  • Cirrus Logic’s stock is still down 39% from its 52-week high. It is relatively undervalued when compared to its peers.
  • CRUS has bullish near-term and long-term algorithmic market trend forecasts.

Going long on Cirrus Logic (CRUS) while it trades below $50 might be decisive. CRUS is still down more than 39% from its 52-week high. It is a perfect bottom-fishing opportunity. A positive event might happen this year. The most popular Apple (AAPL) analyst, Ming-Chi Kuo of KGI Securities, hinted that Apple is working on 3 new iPhones this year.

Kuo expects the cheaper but larger-screened (6.1-inch) version to retail for as low as $699. It will replace the iPhone 8 and iPhone 8 Plus. He argued that this more affordable iPhone can sell as much as 100 million units. There will also be two iPhone X models. The iPhone X Plus will have a 6.5-inch display.

Why Cirrus Logic Can Shoot Up From Cheaper iPhones

The more iPhones that Apple sells, the more money that Cirrus Logic makes. More than 80% of Cirrus Logic comes from Apple. A notable boost in iPhone sales can help CRUS return to $60 by end of 2018.  Cirrus Logic’s stock was punished after it missed Q3 EPS and revenue estimates. Management blamed weaker smartphone demand (meaning weaker-than-expected iPhone sales). Now that Apple is reportedly willing to sell more affordable iPhones, Cirrus Logic’s stock price could recover this year.

The promises of cheaper iPhones with bigger display sizes are two strong selling-points that could convince more hold-outs to upgrade their old iPhone 6/iPhone 7 units. As of November 2017, older iPhone 6 and iPhone 7 models still account for more than 50% of total iPhones in use.

A recent survey by Piper Jaffray revealed that 31% of people said they did not upgrade to the iPhone X because it was too expensive. Consumer Reports also called the iPhone X too expensive. The other 8% surveyed said they want a bigger display. Apple can persuade these hold-outs to upgrade this year if it releases a more affordable iPhone that has a larger screen.

The logic behind Apple’s move is to help it increase iPhone sales volume. Some investors are not happy with the stagnating unit sales of iPhones. Yes, the average selling price of iPhones increased while there’s negative volume growth. Apple’s stock will only probably breach $200 if it can show consistent quarterly or annual increases in iPhone unit sales.

Apple successfully convincing 50 million to 100 million iPhone 6/iPhone 7 hold-outs to buy the new sub-$750 iPhones can add $300 to $900 million to Cirrus Logic’s annual revenue. Cirrus Logic makes around $6 from every iPhone manufactured/shipped out. Cirrus also supplies the audio component for Lightning headphones.

More iPhone sales can help Cirrus Logic deliver $500 million+++ in quarterly revenue. The less-than-expected iPhone X sales during the December 2017 quarter is why Cirrus Logic posted a negative year-over-year growth.

(Source: Rocket Financial)

The reality now is that Apple has to lower the average selling prices of some of its iPhones. The chart below illustrates why selling $999 iPhones is not easy. Rumor has it that Apple cut the production order for the iPhone X by half to 20 million units for Q1 2018.

Cirrus Is Relatively Undervalued

The market’s pessimism over CRUS has left it relatively undervalued compared to its peers. Using the machine learning peer comparative valuation analysis of Fundamental Speculation, I found out that Cirrus Logic’s deserves a fair value of $88.16.

Fundamental Speculation’s AI computed the average valuation ratios of companies with similar business fundamentals to Cirrus Logic and derived a Cohort Fair Value of $90.38. It then deducted a Sector discount of -2.46% to come up with fair value estimate of $88.16.

(Source: FundamentalSpeculation)

Conclusion

Cirrus Logic is a bargain-hunter opportunity. It trades at a discount compared to its Technology Sector and Semiconductor Industry peers. I also believe it will remain the audio CODEC/components supplier for future Apple-made phones, computers, and headphones.

Furthermore, Cirrus Logic has very strong balance sheet. It has little debt.

(Source: Vuru)

My buy rating for CRUS is, of course, in-line with its bullish 30-day, 3-month, and 1-year algorithmic market trend forecasts from I Know First.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized everyday, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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