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Cirrus Logic: A chip stock you’re going to hear a lot more about

Key points

  • Cirrus Logic stock lagged its larger peers last year, but that’s about to change.
  • This week’s results have taken investors by surprise in the best way possible.
  • The stock is already approaching last year’s all-time high and appears to be a good value moving forward.
  • 5 stocks we like better than Cirrus Logic

With so much talk about semiconductor stocks dominated by companies like NVIDIA Corp. NASDAQ:NVDA, Advanced microdynamics Nasdaq:AMD, and the like, it’s easy to think there aren’t that many smaller-cap chip stocks floating around. However, even with a market cap of less than $5 billion, compared to NVIDIA’s $1.7 trillion, Cirrus Logic, Inc. NASDAQ:CRUS can still have a big impact.

It took advantage of the artificial intelligence (AI)-inspired boom in chip stocks a year ago, but then underperformed many of its larger peers during the fall. An end-of-year rally of around 30% demonstrated the potential it had, and this is a theme that has been developed with yesterday’s 15% jump.

The latest catalyst for the bullish move was the company’s fiscal third-quarter earnings, which were released Tuesday evening. Cirrus managed to beat analyst expectations for both headline numbers, with revenue hitting an all-time high along with its best ever earnings per share (EPS) of $2.57.

Bullish outlook

Beyond the pace of big numbers, the company’s future guidance also stood out, which in itself may be a major driver of the bullish momentum in the stock price. In effect, it says that the market has been undervaluing a stock based on future expectations that have now been raised by the company itself. It’s one of the most bullish signals a company can give, and it’s no surprise that it has impressed investors.

They were also impressed by what they see as a higher level of execution by senior managers. Starting 2024 with the highest revenue and EPS is exactly what investors would have been looking for, and it bodes well for Cirrus’ prospects in the coming months. Major milestones were marked in the production of next-generation audio components, while the company also made notable advances in its process technology and foundry strategy.

It also saw strong customer engagement with its portable solutions and advanced several R&D programs in the high-performance mixed signal business. CEO John Forsyth pointed to all this and emphasized the company’s strong product roadmap, which he believes will drive the stock to further gains through 2024 and beyond.

Previous concerns about the company’s dependence on Apple Inc. NASDAQ:AAPLwhich as a customer has been responsible for more than 80% of Cirrus’ revenue, continues to dissipate, with Forsyth opening up more Android-focused revenue channels and diversifying the company’s overall revenue.

High expectations

So how far can Cirrus recover from here? Well, the last few days have seen several major upgrades from analysts, who have been increasing their price targets accordingly. Susquehanna and TD Cowen, for example, were bullish on the stock, each giving it a new price target of $100. Even including yesterday’s pop, this still points to a further rise of over 10%. If Cirrus stock could reach that in the coming weeks, it would be within striking distance of last April’s all-time high, and you’d have to think it would be a good value going forward.

The risk-on sentiment sweeping through stocks right now is simply too good to ignore, due in large part to the growing consensus that the Federal Reserve has achieved a soft landing. Inflation numbers continue to cool and expectations are rising for an end to rate hikes, and perhaps even a cut. While the Relative Strength Index (RSI) for Cirrus stock is 70, suggesting the stock is overbought, it is not high enough to be a cause for concern at this time.

With the semiconductor industry as a whole recovering from a rough couple of years and Cirrus hitting record revenue and profit numbers, there’s plenty of upward momentum left to build before investors should become cautious.

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