Cirrus Logic, Inc. (CRUS), Apple Inc. (AAPL): More Optimism Is Expected for This Small-Cap Tech Company

With more than 1,100 patents, Cirrus Logic, Inc. (NASDAQ:CRUS) continues to be the vital supplier of high-precision analog and digital signal processing components for the audio and energy markets. By leveraging its extensive IP portfolio, the company delivers innovative features while reducing power consumption and costs for chips productions.

Strategically, Cirrus Logic, Inc. (NASDAQ:CRUS) targets fast-growing markets such as portable audio and LED lighting. With the recent launch of its CS53L30 ultra-low power 4-channel microphone A/D converter, Cirrus Logic continues to evolve its product line. The CS53L30, which enhances voice processing features and improves performance in voice capture processing for voice control and recognition, is expected to launch a new generation of mobile consumer products. These products will differentiate the voice experience by offering improved voice control with the user interface.

The company also continues to move forward with the development of LED lighting, particularly with its newest single-stage LED controller. While products are still in early stage, the company is aggressively working with the market leaders to capitalize these revenue growth opportunities.

Mixed numbers and in-line outlook

For the first quarter of 2014, Cirrus Logic, Inc. (NASDAQ:CRUS)’s income and revenue both improved, but its sales fell short of Wall Street expectations. Earnings per share of $0.56 beat the estimate of $0.49 by $0.07. The company’s revenue grew 57% to $155.1 million, and its audio segment surged 78% to $143.7 million. The company’s energy segment dropped 37.2% to $11.5 million, however. Revenue was below the forecast of $160.2 million according to FactSet. In addition, the gross margin in the first quarter was reduced to 51.2% as compared to 54.0% in the year-ago quarter due to higher costs.

For the second quarter of 2014, the company expects revenues in the range of $170 million to $190 million, while analysts on average are estimate revenues of $190.02 million. The company’s gross margin is expected to decline further to between 46.0% and 48.0%. Analysts are projecting 8.20% sales growth for the 2014 fiscal year with a declined earnings per share estimate of $2.28, as compared to the year-ago earnings per share of $3.25.

Fundamentals and Valuation

Cirrus Logic, Inc. (NASDAQ:CRUS) has a very healthy balance sheet as it has no long-term debt and currently has cash and short-term investments of $67.2 million, which has increased $0.8 million from the previous quarter. Cirrus Logic’s operating margin of 25.6% in the trailing 12 months and net margin of 17.4% in the trailing 12 months are both higher than the industry averages of 17.4% and 11.9%, respectively. Cirrus Logic’s return on equity of 24.1 in the trailing 12 months is also much higher than the industry average of 13.1.

At current price-to-earnings ratio of 8.9, Cirrus Logic, Inc. (NASDAQ:CRUS)’s valuation is much lower than the industry average of 23.3 as well as S&P 500’s average of 17.2. Cirrus Logic’s price-to-book ratio of 2.2 and price-to-cash flow ratio 6.7 are both below the industry averages of 2.7 and 9.2, respectively.

What now?

In the past five years, Cirrus Logic, Inc. (NASDAQ:CRUS)’s performance has been in-sync with Apple Inc. (NASDAQ:AAPL), Cirrus Logic’s top customer. Cirrus Logic’s share price had surged over 253% and Apple’s price had gained 195% in the same period. Looking forward, Cirrus Logic could be benefiting from Apple’s possible recovery, with the latter gaining near 10.4% since its latest earnings release on July 23.

There are numerous rumors flying around for Apple Inc. (NASDAQ:AAPL)’s upcoming new products, including a cheaper version of the iPhone known as the “iPhone C” and both the iPhone 5S and iPhone 6. Although many things remain uncertain regarding Apple’s new products, more upside potential is expected when the products are confirmed.