Cirrus Logic

Cirrus Logic Inc. (CRUS - Snapshot Report) delivered a more than 7% positive surprise in its fiscal second quarter, which helped this fabless semiconductor company become a Zacks #1 Rank (Strong Buy) on November 28. It also recently announced authorization to buyback $200 million shares. CRUS has a long-term projected growth rate of 15.0%.

Strong Revenue Boosts Second Quarter

On October 31, Cirrus Logic reported that fiscal second quarter earnings surged 154.2% year over year to 71 cents per share, which exceeded the Zacks Consensus Estimate by 7.58%. The key driver of the surprise was solid revenue growth.

Revenue jumped 90.7% from last year to $193.8 million, well above the Zacks Consensus Estimate of $180.0 million.

Better-than-expected growth was driven by the 112.6% year-over-year improvement in Audio Product revenues. Revenue from this segment increased on the back of higher sales for Apple Inc.’s (AAPL) iPhone 5, which had a solid backlog in the preceding quarter.

Management provided an upbeat outlook for the third quarter. Revenue is expected between $270.0 million and $300.0 million, with gross margin in the 50.0% to 52.0% range and operating expenses of $49.0 million to $52.0 million. The solid revenue projection was due to strong demand for its analog and mixed-signal integrated circuits for audio products.

Earnings Estimates Move Higher

The past 60 days have seen 3 out of 4 estimates revised higher for both fiscal 2013 and fiscal 2014. For the current fiscal year, the Zacks Consensus Estimate has jumped 36.6% to $3.21. For next fiscal year, the Zacks Consensus Estimate is up 31.6% to $3.58.

Reasonable Valuation Currently, Cirrus Logic is trading at a premium to most of its peers based on P/E, P/S and P/B. The premium valuation seems justified given the company’s solid earnings growth prospects. Its earnings growth expectation of 15.0% over the next five years compares favorably with the industry average of 13.6%, indicating room for further expansion. Moreover, its return on equity (ROE) of 24.3% is higher than the industry average of 20.0%.

Cirrus Logic designs ICs for the audio and energy markets. The major contributor to the company’s revenue is its audio product portfolio. Audio products generate 85.0% of total revenue while only 15.0% comes from Energy products. The company has a strong customer base but its prime customer is Apple with revenue contributions of 62.0% in 2012, 47.0% in 2011 and 35.0% in 2010.

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