Tuesday sent a flurry of bad news towards Cirrus Logic (CRUS) as the company finished the day down roughly 4.5%. The sharp move lower came on elevated volume—which was roughly twice a normal day—and was largely due to earnings weakness in consumer electronics giant Apple (AAPL).
This Apple weakness drove down Cirrus because CRUS is almost entirely dependent on Apple for its revenues. In fact, some estimates have close to 85% of Cirrus’ revenues coming from Apple, so any weakness in the company’s demand outlook could spell bad news for CRUS.
If that wasn’t enough, Cirrus was reporting its own earnings after the bell, an event that looked to also drive the company’s stock. The firm did manage to top the consensus for both revenue and earnings, but guided the current quarter’s revenues significantly below the consensus.
Now, the company is looking for revenue in a range between $130 million to $150 million, a figure that was well below the average $175 million estimate. Thanks to this significantly reduced guidance, CRUS sold off after hours too, falling another 5% in the time period.
Recent History and Outlook
Cirrus Logic had been seeing rising estimates coming into this earnings report, including a huge increase in the consensus estimate. In just the past three months, the current year EPS estimate rose from $2.04/share to $2.32/share, so this sudden reversal for the company isn’t exactly priced in.
Instead, we could see estimates fall over the next few days for CRUS, especially if Apple fails to announce any new products shortly, or soothe investor worries about demand for various 'iProducts'. Growth was already contracting for the company even before this report, so we could see some serious cuts to year-over-year estimates, further signaling how dramatic the turn has been in CRUS.
Bottom Line
I expect CRUS to fall from its solid Zacks Rank in short order, especially once analysts start to revise their numbers lower based on both the news from Apple, and the Cirrus Logic management guidance. If this happens, the stock may be poised to continue its rough patch, particularly since CRUS is in the bottom 50% for industry rank too.
Given all of these factors, it appears as though you might want to hold off on adding a position to CRUS, at least until more estimates come out on the stock. If estimates remain stable, this might be an interesting entry point, though if we see analysts give up on the company in the near term, it could be time to avoid this Apple-dependent company until it can truly turn things around.