Pacific Crest upgraded Cirrus Logic (NASDAQ: CRUS) from Sector Weight to Overweight with a price target of $40. Analyst John Vinh highlighted the recent pullback in the stock, reset expectations, and takeaways from CES related to confidence in the noise-canceling earbud opportunity in the iPhone 7.

"Given takeaways from CES and a pullback in the stock, we view this as a buying opportunity and upgrade CRUS to Overweight with a $40 target. We are upgrading CRUS to Overweight given (1) meetings at CES with headphone OEMs increase our confidence in the earbud opportunity in the iPhone 7; (2) we view the reset in expectations and recent pullback in the stock as a buying opportunity; and (3) despite lowering our F2016 estimates, we see an incremental $2 in content opportunity for Cirrus and are increasing our F2017 estimates. Our $40 price target is based on 12x our F2017 EPS estimate of $3.38," said Vinh.

The analyst added, "Discussions with multiple headphone OEMs increase our confidence in the noise-canceling earbud opportunity in the iPhone 7. Meetings with headphone OEMs increase our confidence in the noise-canceling earbud opportunity in the iPhone 7, as (1) we noted several headphones on display with Lighting connector interfaces, and (2) OEMs indicated superior sound quality from the use of a digital connector and the ability to embed a smart codec in the headphone. In our view, Apple needs a compelling feature upgrade, which noise-canceling earbuds would provide."

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Shares of Cirrus Logic closed at $26.80 yesterday.