Cirrus Logic Could Sell Off to 60

iPhone supplier Cirrus Logic Inc. (CRUS) is posting marginal gains in Tuesday’s pre-market following a tier one analyst upgrade. The Austin-based integrated circuits manufacturer fell 15% last week after missing Q4 2021 top and bottom line estimates, posting earnings-per-share (EPS) of $0.66 on a 5.1% revenue increase to $293.54 million. The company also issued downside guidance, blaming supply constraints that have caught the semiconductor industry off-guard.

Hurt By Supply Constraints

The company should benefit from US – China discussions intended to reduce export control-driven bottlenecks that have impacted dozens of industries dependent on the silicon chip. However, natural forces of supply and demand should eventually ease the crisis, with manufacturers now ramping up production. Meanwhile, Apple Inc.’s (AAPL) blowout iPhone sales this year raise odds that Cirrus Logic will recover lost ground once balance is returned.

Needham analyst Rajvindra Gill upgraded Cirrus Logic to ‘Buy’ with a $100 target this morning, noting “We’ve been on the sidelines owing to the high valuation and the concentration of revenues in Apple (70 to 80%+). The stock has fallen ~26% from its mid-January peak (underperforming the SOX by 29% over that period) and its P/E multiple has compressed 40%. While recent results/guidance was disappointing … new opportunities are emerging. Net, we expect revenue growth to accelerate in FY22 and believe stock is compelling here.”

Wall Street and Technical Outlook

Wall Street consensus has grown cautious so far in 2021 due to high valuation, yielding an ‘Overweight’ rating based upon 7 ‘Buy’ and 4 ‘Hold’ recommendations. Price targets currently range from a low of $80 to a Street-high $115 while the stock is set to open Tuesday’s session about $7 below the low target. While the upgrade should ease highly bearish sentiment, short-term technical damage will take time to overcome.

Cirrus Logic failed a breakout above the 2017 high at 71.97 in the first quarter of 2020, descending into the mid-40s. It bounced back to resistance in January 2021 and broke out but failed that advance as well. Price action is now caught between support in the 70s and resistance just above 100 while downside momentum after last week’s selloff favors a breakdown that could deep support near 60 before attracting committed buying interest.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.