Cirrus Logic Stock: Small Semiconductor Play for Long-Term Portfolios

Why Investors Can Think Long-Term With CRUS Stock

Semiconductor stocks remain under pressure, initially from supply chain disruptions and now from softening demand. While the semiconductor industry has been undergoing significant restructuring, its outlook is positive, given the recently passed CHIPS and Science Act.

Under the legislation, the U.S. government will provide $52.0 billion for domestic semiconductor research and production. This will help jumpstart the U.S. semiconductor fabless and fabrication sectors.

Many U.S.-based semiconductor companies will benefit from the spending. On the smaller end, I like Cirrus Logic, Inc. (NASDAQ:CRUS), which has $4.1 billion of market capitalization.

The company develops low-power, high-precision, mixed-signal processing solutions for mobile and consumer devices. Cirrus Logic, Inc.’s products are found in heavy-use applications like laptops, tablets, headsets, smartphones, smart homes, speakers, and wearables.

Advertisement

The potential for the company is significant, but like other semiconductor stocks, Cirrus Logic stock has been under pressure, down by 20% this year. I see this as an opportunity.

Chart courtesy of StockCharts.com

My Bullish Fundamental Case for Cirrus Logic, Inc.

Cirrus Logic has strong fundamentals, and its shares are attractively priced, which makes CRUS stock compelling.

The company’s five-year revenue picture shows growth in three consecutive fiscal years (which end in March). Cirrus Logic, Inc. reported impressive revenue growth of 30.1% to $1.8 billion for fiscal 2022.

But it looks like the company’s revenue growth rate has been moving toward normalization since then. Analysts estimate that Cirrus Logic will increase its revenues by 2.1% to $1.8 billion in fiscal 2023 and then by 8.1% to $2.0 billion in fiscal 2024. (Source: “Cirrus Logic, Inc. (CRUS),” Yahoo! Finance, last accessed September 13, 2022.)

That translates to a valuation of 2.1 times the company’s consensus fiscal 2024 revenue estimate.

Fiscal YearRevenues (Billions)Growth
2018$1.5N/A
2019$1.2-22.6%
2020$1.38.1%
2021$1.46.9%
2022$1.830.1%

(Source: “Cirrus Logic Inc.” MarketWatch, last accessed September 13, 2022.)

Cirrus Logic, Inc. has managed to produce consistent earnings before interest, taxes, depreciation, and amortization (EBITDA) income. In fiscal 2022, the company had a five-year high EBITDA of $420.1 million, up by 51.7% compared to fiscal 2021.

Fiscal YearEBITDA (Millions)Growth
2018$343.9N/A
2019$175.7-48.9%
2020$255.645.5%
2021$276.98.3%
2022$420.151.7%

(Source: MarketWatch, op. cit.)

Moving to the bottom line, Cirrus Logic, Inc. has been consistently profitable. In the last three years, the company has achieved double-digit generally accepted accounting principles (GAAP) diluted earnings-per-share (EPS) growth to a five-year high of $5.52 in 2022.

Looking forward, Cirrus Logic, Inc. is expected to report an adjusted $5.52 per diluted share for fiscal 2023, versus $6.90 in fiscal 2022. (Source: Yahoo! Finance, op. cit.)

It looks like things will improve in 2024, with adjusted earnings growing to $6.30. This translates to a valuation of 10.2 times the company’s consensus 2024 EPS estimate.

Fiscal YearGAAP Diluted EPSGrowth
2018$2.46N/A
2019$1.46-40.6%
2020$2.6480.5%
2021$3.6237.2%
2022$5.5252.5%

(Source: MarketWatch, op. cit.)

Cirrus Logic, Inc. has also been consistently churning out positive free cash flow (FCF). The company’s FCF declined in fiscal 2022, but I expect it to improve.

Fiscal YearFCF (Millions)Growth
2018$263.5N/A
2019$175.1-33.6%
2020$280.260.0%
2021$330.718.0%
2022$96.9-70.7%

(Source: MarketWatch, op. cit.)

Analyst Take

Cirrus Logic, Inc. has attracted a high amount of institutional ownership. About 437 institutions hold a 91.2% interest in Cirrus Logic stock. (Source: Yahoo! Finance, op. cit.)

Moreover, company insiders have been adding CRUS stock to their investment portfolios to the tune of a net 20,222 shares over the last six months.

While Cirrus Logic stock doesn’t have the high growth of the much bigger semiconductor stocks, its attractive valuation and consistent fundamentals make it an ideal long-term investment.