Will Relying On Apple Hurt Cirrus Logic (CRUS) Q3 Earnings?

Cirrus Logic, Inc. (NASDAQ:CRUS) is slated to release third-quarter fiscal 2018 results on Feb 5. The question lingering in investors’ minds is whether this semiconductor company will be able to post a positive earnings surprise in the to-be-reported quarter. Notably, over the trailing four quarters, the company delivered an average positive earnings surprise of 18.3%. So, let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at $1.77, representing a year-over-year decline of 5.4%. We note that the Zacks Consensus Estimate for the quarter remained nearly unchanged over the past 60 days. Additionally, analysts polled by Zacks project revenues of roughly $531.8 million, marginally up from the year-ago quarter revenues of $523 million.

Lackluster iPhone X Demand to Hurt Revenues

It is likely that Cirrus Logic might have to pay the price of relying much on Apple (NASDAQ:AAPL) as the company generates more than 75% of its revenues through selling audio chips which are used in iPhone devices. This is so because various reports suggest that Apple’s iPhone X sales remained below expectations in fourth-quarter 2017.

The premium device received warm welcome from customers initially when it was launched on Nov 3, 2017. According to data from analytics firm — Mixpanel — quoted by Business Insider, iPhone X adoption was at 4.76%, better than iPhone 8 Plus at 3.59%, and iPhone 8 at 2.78% in November 2017.

However, the device failed to catch up later due to significant supply constraint issues, which affected Apple’s delivery schedules. Further, premium pricing — iPhone X starts at $999 — also lowered demand, particularly in cost sensitive regions like South East Asia.

According to Nikkei, which was quoted by The Inquirer, Apple recently slashed its production target by half from almost 40 million projected at the time of iPhone X release. Apple has cited sluggish holiday season sales for its decision to cut production.

We believe sluggish sales of iPhone X and Apple’s recent decision to cut down productions of the device will thwart Cirrus Logic’s third-quarter top- and bottom-line results.

Cirrus Logic, Inc. Price and EPS Surprise

Cirrus Logic, Inc. Price and EPS Surprise | Cirrus Logic, Inc. Quote

What the Zacks Model Unveils?

Our proven model does not conclusively show that Cirrus Logic is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cirrus Logic currently carries a Zacks Rank #4 (Sell) and an Earnings ESP of -0.24%. Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

MSCI Inc. (NYSE:MSCI) has an Earnings ESP of +0.86% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zendesk, Inc. (NYSE:ZEN) has an Earnings ESP of +9.91% and a Zacks Rank #3.

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