Friday, July 23, 2010

Bookkeeping: Starting Cirrus Logic (CRUS) as Poor Man's Apple Play (Also Some TNA ETF)

Preface: As mentioned earlier I would be likely to go long TNA ETF on a break of S&OP 1102; I've done so - initial target will be S&P 1113.  I had a very small short TNA which I obviously closed out.

A lot of the type of stocks I am interested in are not the huge multinationals so they report in the next week or three - it is difficult to buy them ahead of earnings.  Looking at some other candidates, Cirrus Logic (CRUS) reported earlier this week so we have that headline event risk out of the way.  The report was good - this is generally a 'cyclical' play but now has a 'secular' growth component to it... by the name of Apple (AAPL).
  • Rhode said the company's flagship audio chip lines continued to sell well. One big reason, he said, was that its largest customer was growing fast. He didn't name the customer, but tear-downs by research firms of both Apple iPads and iPhones show Cirrus chips inside.
The company is also entering the smart meter market so in a way the end markets this company is exposed to is not unlike a Skyworks Solutions (SWKS) or TriQuint Semiconductor (TQNT) although the chips are different.
  • Sales of energy chips amounted to $27.9 million for the quarter, up 119%. That was "mainly due to growing demand for both power meter products and energy expiration products," Chief Financial Officer Thurman Case said on the call.

Techincally the stock is breaking out to new highs today, but has a small gap in the low $18s to deal with as well.  If the market runs into a selloff I assume CRUS will come in and fill that gap but the relative strength in this name has been tremendous the past few months, especially considering the volatile market and sharp selloffs the indexes have experienced.  The stock has barely broken below its 20 day moving average during this mega run. I'm willing to begin a 2% stake here with the understanding a move to lower $18s is more than probable.   As long as it keeps hugging that 20 day moving average and making new "higher highs" the trend should remain up.

The company has already had a huge 2010; eventually this story will end badly as one of these quarters it will blow up on earnings.  But we have 87 days before we have to worry about that.

The stock is "cheap" but that is because it's considered a cyclical semi stock and does not get the premium attached to some secular growth stories in the semi space.  Analysts just bumped up 2010 estimates (year end March 2011) from $1.15 to $1.47 after this report below.

A summary of this week's earnings report:
  • Chipmaker Cirrus Logic Inc (CRUS) posted quarterly results beating estimates and forecast strong second quarter revenue.  Cirrus, which makes high-precision, analog and mixed-signal integrated circuits for the audio and energy markets, sees second-quarter revenue of $98 million to $106 million.  Analysts on average expect $86.2 million, according to Thomson Reuters I/B/E/S.
  • Gross margin is expected to be between 56 percent and 58 percent
  • For the first quarter the company posted net income of $17.6 million, or 25 cents a share. Excluding special items, the company earned 29 cents a share, above analysts' estimates of 28 cents.
  • Revenue more than doubled to $81.9 million. Revenue from audio products segment was $54 million, up from $24.8 million last year. Analysts were looking for revenue of $81.2 million.
  • Gross margin for the quarter was 57 percent, up from 52 percent in the first quarter a year ago, and up from 56 percent for the previous quarter.
(full report here)

Cirrus Logic develops high-precision, analog and mixed-signal integrated circuits for a broad range of innovative customers. Building on its diverse analog and signal-processing patent portfolio, Cirrus Logic delivers highly optimized products for a variety of audio and energy-related applications.

Long Cirrus Logic in fund; no personal position

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