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Cirrus Logic: Dongles and Dollars
11/15/2017 5:00 am EST
Cirrus Logic (CRUS), the leading supplier of the complete audio signal chain from capture to playback, believes it is uniquely positioned to capitalize on the rapidly growing demand for differentiating audio and voice technology, notes Doug Gerlach, editor of Small Cap Informer.
Increasingly, device headsets are transitioning from analog wired technologies to digital technologies, as evidenced by the recent move by Apple (AAPL) to replace the headphone jack from the iPhone in favor of wireless headphones that rely on Bluetooth technology.
This trend plays to Cirrus Logic’s strengths. In addition, smart home and connected automotive applications that rely on voice commands will also drive sales of Cirrus Logic products.
Cirrus Logic’s chips are used in most of Apple’s mobile and TV devices. The much-touted improved sound quality of the iPhone 8 series is due to Cirrus Logic components.
In addition, the “dongle” that ships with current headphone-jackless devices relies on Cirrus technology, but these are expected to be discontinued by September 2019.
This has some investors concerned, but opportunities in the Android device space should provide plenty of backfill for lost Apple device revenues.
We are maintaining our long-range view of 15% growth of EPS and revenues for Cirrus. At this course and speed, revenues would reach $3.2 billion and EPS $8.39 by the first quarter of 2021.
A high P/E of 17.3 times high EPS of $8.39 would deliver a high price of $145. Our selected low P/E, 9.3, times trailing 12-month EPS of $4.17, equals a low price of $39. From current levels, the upside/downside ratio is 6.5:1 and the possible annual total return is 22.3% from the current price.
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