Dougherty & Co Starts Cirrus Logic (CRUS) at Buy

Dougherty & Co initiated coverage on Cirrus Logic (NASDAQ: CRUS) with a Buy rating and a price target of $52. Analyst Charles Anderson sees noise cancelling earbuds are a massive opportunity. He also noted content gains and longer-term opportunity that Cirrus could emerge as a biometrics play.

"Cirrus Logic has proven over many years that it is among the most trusted suppliers in the smartphone supply chain and the go-to company for audio semiconductors. For as far as we can see, we believe audio functions on mobile devices will grow in importance due to the increasing popularity of 1) streaming services and 2) "always on" smartphone voice assistants ("Hey Siri"). We are specifically excited about three opportunities to drive upside to our estimates: 1) smartphone OEMs adopting CRUS' noise cancelling earbuds solution 2) adding China Inc. OEMs as customers (CRUS is vastly underexposed to this portion of the market) and 3) CRUS eventually delivering a voice biometrics solution to smartphones and earning incremental content per device (admittedly longer-term). Our $52PT is based on 17x our FY17 EPS estimate of $3.05," said Anderson.

Discussing the Noise cancelling earbuds in more detail, the analyst said, "We believe investors have been slow to grasp the opportunity Cirrus has to meaningfully increase semiconductor content per smartphone (by $2-$3+) if OEMs embrace its noise-cancelling earbuds solution, unveiled in September. The Cirrus solution gives OEMs the ability to package a $300 Bose noise-cancelling headset-type experience in a pair of inexpensive (<$10) earbuds shipping with the smartphone (a CRUS audio codec would be added to the earbuds). Technology has only recently allowed this to happen thanks to both the lightning connector on iOS devices and the USB Type-C connector on Android/Windows devices supporting both data (for music transmission) and power (to support the noise cancellation system without a battery pack). There are already reports that Apple plans to eliminate the headphone jack entirely on the iPhone 7, increasing the odds of a CRUSbased solution. If Apple goes in this direction it would also be a meaningful demand driver for after-market headphones OEMs to consider the solution. Last, we note our estimates do not assume any meaningful upside from this product and we do not believe consensus is taking it into account either. Assuming a $2 ASP, every 100MM units generates ~$0.40 of incremental annual EPS to our estimates."

For an analyst ratings summary and ratings history on Cirrus Logic click here. For more ratings news on Cirrus Logic click here.

Shares of Cirrus Logic closed at $30.34 yesterday.

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