BUSINESS
Cirrus Logic, Inc., a fabless semiconductor company, provides low-power and high-precision mixed-signal processing solutions in the United States and internationally. It offers portable products, including codecs components that integrate analog-to-digital converters (ADCs) and digital-to-analog converters (DACs) into a single integrated circuit (IC); smart codecs, a codec with digital signal processer; boosted amplifiers; digital signal processors; and SoundClear technology, which consists of a portfolio of tools, software, and algorithms that helps to enhance user experience with features, such as louder, high-fidelity sound, audio playback, voice capture, hearing augmentation, and active noise cancellation.
INVESTMENT RATING
CRUS’ future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be an important Value Builder.
Cirrus Logic has a current Value Trend Rating of C (Neutral).
The Value Trend Rating reflects contradictory signals from PTR’s two proprietary measures of a stock’s attractiveness. Cirrus Logic has a slightly negative Appreciation Score of 36 but a good Power Rating of 74, and the Neutral Value Trend Rating results.
Cirrus Logic’s stock is selling below targeted value. The current stock price of $90.17 compares to targeted value 12 months forward of $96.
This moderately low appreciation potential results in an appreciation score of 36 (64% of the universe has greater appreciation potential.)
Cirrus Logic has a Power Rating of 74. (CRUS’ good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 26% of companies in the universe.)
Factors contributing to this good Power Rating include: the recent trend in CRUS’ earnings estimates has been favorable; and recent price action has been favorable. An offsetting factor is the Semiconductor, Related Devices comparison group is currently in an unfavorable position.
INVESTMENT PROFILE
CRUS’ financial strength is exceptional. Financial strength rating is 98.
Relative to the S&P 500 Composite, Cirrus Logic Inc. has neutral Growth/Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that CRUS is lower risk. Low financial leverage is a positive for CRUS. Relative weaknesses include: low expected growth, and low historical growth. CRUS’ valuation is moderate: low dividend yield, moderate P/E ratio, and moderate price/book ratio. CRUS has unusually low market capitalization.
CURRENT SIGNALS
Cirrus Logic’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Cirrus Logic’s current technical position is very strong. The stock price is in a 4.2 month up move. The stock has appreciated 40.5% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Cirrus Logic Inc. (NASDAQ: CRUS) has benefited from small positive changes in fundamentals: the stock’s power rating rose above 70.
The stock is currently rated C.
On 4/10/24, Cirrus Logic Inc. (NASDAQ: CRUS) stock declined by -3.6%, closing at $90.17. However, this decline was accompanied by unusually low trading volume at 60% of normal. Relative to the market the stock has been strong over the last nine months but has declined -1.7% during the last week.
CASH FLOW
In 2023, Cirrus Logic generated a very significant increase in cash of +$100.3 million (+26%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$418.9 million. Non-operating uses consumed -$102.5 million (-24% of EBITDA). Cash taxes consumed -$87.7 million (-21% of EBITDA). Withdrawal of investment from the business totaled +$27.5 million (+7% of EBITDA). On a net basis, debt investors received -$37.7 million (-9% of EBITDA) while equity investors pulled out -$118.2 million (-28% of EBITDA).
Cirrus Logic’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Cirrus Logic Peer Group. (Since 2021 Non-operating Income, %EBITDA has accelerated very sharply.) In most years, Cirrus Logic was in the second quartile and top quartile. Currently, Cirrus Logic is lower quartile at -24% of EBITDA (-$102.5 million).
Cirrus Logic’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Cirrus Logic Peer Group. In most years, Cirrus Logic was in the third quartile and top quartile. Currently, Cirrus Logic is below median at -21% of EBITDA (-$87.7 million).
Cirrus Logic’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Cirrus Logic Peer Group. In most years, Cirrus Logic was in the top quartile and third quartile. Currently, Cirrus Logic is upper quartile at +7% of EBITDA (+$27.5 million).
Cirrus Logic’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Cirrus Logic Peer Group. In most years, Cirrus Logic was in the lower quartile and top quartile. Currently, Cirrus Logic is substantially below median at -9% of EBITDA (-$37.7 million).
Cirrus Logic’s Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Cirrus Logic Peer Group. In most years, Cirrus Logic was in the lower quartile and second quartile. Currently, Cirrus Logic is substantially below median at -28% of EBITDA (-$118.2 million).
Cirrus Logic’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Cirrus Logic Peer Group. In most years, Cirrus Logic was in the top quartile and lower quartile. Currently, Cirrus Logic is above median at +24% of EBITDA (+$100.3 million).
Cirrus Logic’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Cirrus Logic Peer Group as well. (Since 2021 Cash, %Revenue has experienced a very sharp decline.) In most years, Cirrus Logic was in the second quartile and top quartile. Currently, Cirrus Logic is above median at +25%.
PROFITABILITY
Cirrus Logic’s return on equity has eroded slightly since 2014. The current level of 9.8% is 1.34X the low for the period and is -42.4% from the high.
This slight erosion was due to strong negative trend in pretax operating return and small positive trend in non-operating factors.
The productivity of Cirrus Logic’s assets declined over the full period 2014-2023: asset turnover has experienced a downtrend but it experienced a sharp recovery after the 2021 low.
Reinforcing this trend, pretax margin has experienced a downtrend that accelerated very sharply from the 2022 level.
Non-operating factors (income taxes and financial leverage) had a minor positive influence on return on equity.
Cirrus Logic’s return on equity is slightly below median (9.8%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is above median (11.1%) reflecting asset turnover that is at median (0.81X) and substantially above median pretax margin (13.7%).
Tax “keep” rate (income tax management) is lower quartile (71.7%) resulting in after tax return on assets that is above median.
Financial leverage (leverage) is lower quartile (1.23X).
GROWTH RATES
There are no significant differences between Cirrus Logic’s longer term growth and growth in recent years.
Cirrus Logic’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 9.4% per year.
Total asset growth has been 11.4% per year.
Annual E.P.S. growth has been 14.1% per year.
Equity growth has been 11.7% per year.
No consensus growth rate forecast is available for Cirrus Logic.
Relative to the Cirrus Logic Peer Group, Cirrus Logic’s historical growth measures are generally third quartile. E.P.S. growth (14.1%) has been slightly above median. Equity growth (11.7%) has been at median. Revenue growth (9.4%) has been below median. Total asset growth (11.4%) has been at the lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Cirrus Logic’s stock price performance has been volatile and superior. Between June, 2013 and April, 2024, Cirrus Logic’s stock price rose +419%; relative to the market, this was a +62% gain. Significant price moves during the period: 1) May, 2019 – December, 2019: +121%; 2) December, 2015 – May, 2017: +123%; and 3) November, 2014 – May, 2015: +106%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -10.6% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -10.6% is below median relative to Cirrus Logic Inc. Peer Group.
Current 5-year total return performance of 18.0% is upper quartile relative to the S&P 500 Composite.
Through February, 2024, with upper quartile current 5-year total return of 18.0% relative to S&P 500 Composite, Cirrus Logic’s total return performance is at the upper quartile relative to Cirrus Logic Inc. Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CRUS’ overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is above median. Price/earnings ratio is above median. Price/equity ratio is below median. Ratio of enterprise value/revenue is below median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at the lower quartile.
Relative to Cirrus Logic Peer Group, CRUS’ overall valuation is high. The highest factor, the ratio of enterprise value/revenue, is at the upper quartile. Price/equity ratio is near the upper quartile. Ratio of enterprise value/assets is at the upper quartile. Price/earnings ratio is above median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at median.
Cirrus Logic has a major value gap compared to the median valuation. For CRUS to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 2.81X to 1.80X. If CRUS’ ratio of enterprise value/revenue were to fall to 1.80X, its stock price would be lower by $-34 to $57.
For CRUS to fall to lower quartile valuation relative to the Cirrus Logic Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 2.81X to 1.51X. If CRUS’ ratio of enterprise value/revenue were to fall to 1.51X, its stock price would decline by $-43 from the current level of $90.
VALUE TARGETS
CRUS’ future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be an important Value Builder.
Cirrus Logic’s current Price Target of $96 represents a +6% change from the current price of $90.17.
This moderately low appreciation potential results in an appreciation score of 36 (64% of the universe has greater appreciation potential.)
Notwithstanding this moderately low Appreciation Score of 36, the high Power Rating of 74 results in an Value Trend Rating of C.
Cirrus Logic’s current Price Target is $96 (-6% from the 2023 Target of $102 but +6% from the 04/10/24 price of $90.17). This slight fall in the Target is the result of a +7% increase in the equity base and a -12% decrease in the price/equity multiple. The forecasted decline in growth has a large negative impact on the price/equity multiple and the forecasted increase in cost of equity has a large negative impact as well. Partially offsetting these Drivers, the forecasted increase in return on equity has a large positive impact.
PTR’s return on equity forecast is 18.7% — in line with our recent forecasts. Forecasted return on equity exhibited a modest, erratic decline between 2015 and 2023. The current forecast is well above the 2020 low of 12%.
PTR’s growth forecast is 8.0% — below our recent forecasts. Forecasted growth suffered a dramatic, variable decline between 2015 and 2023. The current forecast is significantly below the 2015 peak of 22%.
PTR’s cost of equity forecast is 10.9% — in line with recent levels. Forecasted cost of equity exhibited a slight, erratic decline between 2015 and 2023. The current forecast is above the 2020 low of 8.3%.
At Cirrus Logic’s current price of $90.17, investors are placing a positive value of $31 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 13.0% per year, and a return on equity of 16.9% versus a cost of equity of 10.3%.
PTR’s 2025 Price Target of $96 is based on these forecasts and reflects an estimated value of existing assets of $59 and a value of future investments of $37.
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