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Cirrus Logic (CRUS) PT, Estimates Lifted By Oppenheimer After Q4, 'Outperform' Reiterated

 April 26, 2012 04:24 PM

(By Balaseshan) Oppenheimer & Co. analyst Rick Schafer raised his price target on shares of Cirrus Logic Inc. (NASDAQ:CRUS) to $30 from $28, while reiterating his "Outperform" rating.

After the company's fourth quarter results, the brokerage increased its 2013 EPS estimate to $1.64 from $1.59 and its 2014 estimate to $1.95 from $1.82.

The company posted in-line fourth quarter EPS of $0.36 and revenue of $111 million. Q4 sales split 82%/18% Audio/Energy, compared to 86%/14% the prior quarter. Energy increased 19% sequentially on an uptick in high GM Seismic and initial LED production ramp (about 500,000 units).

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Despite an ongoing LED ramp, Schafer looks for Energy to decline sequential in Q1 as notoriously lumpy Seismic sales drop.

Audio was down 14% sequential as sales to Apple Inc. (NASDAQ:AAPL) decreased about 20% to 63% of total revenues from 70% in the prior quarter. Home audio sales rebounded 5% on inventory restocking. Despite the near-term lull, AAPL remains CRUS's primary growth driver and could exit calendar 2012 as an 80% customer.

Gross margin increased 250 basis points sequential to 56.5%, above prior guidance of 54% to 56%. Gross margin guidance of 54% reflects the expected down-tick in high-margin Seismic.

The analyst looks for margins to remain relatively stable in the mid-50's going forward as management counters the mix shift towards PA with better wafer pricing, improved BE cycle times and increased integration.

[Related -Cirrus Logic, Inc. (CRUS): Attractive In The Short-Term]

Management secured a $100 million revolver to fund a rapid inventory build to support second half demand. With $185 million in cash on hand, Schafer believes CRUS has ample room to take on the expected about $56 million inventory increase. Additionally, it has secured front and back-end capacity.

Outlook for Q1 revenue of $101 million fell short of consensus $107 million on timing issues at Apple. Management expects a sharply higher level of revenue beginning in Q2. Inventory is expected to double sequential as CRUS funds increased demand with a $100 million revolver.

The analyst believes CRUS has secured the iPhone 5 socket and look for units as well as content increases to drive second half upside. CRUS remains a top play on the growth and success of Apple. He looks for shares to trade better today following management's bullish second half commentary.

CRUS shares are up 46% versus SOX's 12% uptick. Despite yesterday's 11% rally and year-to-date outperformance, CRUS trades at 12 times calendar 2013 EPS, a discount to peers' 14 times.

The analyst attributes this to customer concentration fears. Near term, he feels CRUS offers investors some of the best growth/upside potential in the group on the back of AAPL unit/content growth.

CRUS closed Thursday's regular session up 18.62% at $27.39.



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