Valens Research – Weekly Equity Idea Highlight - 2019 02 27
At current valuations, market expectations for CRUS remain modest. CRUS successfully improved Uniform ROA (ROA') over the last several years, from what was below cost-of-capital levels to 22%-28% over the last six years. This was primarily due to Uniform Earnings Margin expansion and steady Uniform Asset Turns improvement. The company has been able to generate and maintain these superior returns thanks to their positioning in the premium audio market for Apple and Android products and other end markets, where they have a superior position and pricing power thanks to their competitive advantages.ROA′ is projected to stabilize at around 10% levels going forward. However, at a current Uniform P/E (Fwd V/E') of 14x, market expectations are much more pessimistic. Markets are currently pricing in Uniform Asset Growth to remain at low 2018 levels of 6% over the next several years, but for ROA′ to decline from current 22% levels to 6% over the next five years. Considering the company's steady ROA′ the last several years and steady growth, the company appears undervalued.
Cirrus Logic focuses on low-power integrated circuits (ICs) for audio, voice and other signal-processing applications. The company's product lines include: Portable Products, including codecs, which are chips that integrate analog-to-digital converters (ADCs) and digital-to-analog converters (DACs) into a single IC, smart codecs, which are codecs with digital signal processing integrated, amplifiers, micro-electromechanical systems microphones, haptic drivers, standalone digital signal processors, and its SoundClear? technology, which includes a portfolio of tools, software and algorithms; and Non-Portable and Other Products, which include ICs, codecs, ADCs, DACs, digital interfaces and amplifiers.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.