Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message|
( followers)  

If you ran a business, which problem would you rather have? Not being able to currently keep up with the robust demand for your products or having capacity but tepid demand? I think most investors would choose the first challenge as capacity can be built easier than generating demand. That is exactly the situation Apple (NASDAQ:AAPL) is facing currently with the rollout of its fast selling iPhone5. I have every confidence that the company will correct its supply imbalance over the coming months which should have a positive impact on the stock. I have a long bull put spread position on the stock even though I think the sentiment will remain negative in the short term, which I outlined the other day.

Given that, I am looking for other plays as Apple figures out ways to meet the impressive demand for its core product. I think I have found one in Cirrus Logic (NASDAQ:CRUS) who reported earnings this week and easily beat estimates. This company gets over half of its revenue from Apple and is a key component maker for the iPhone5. The stock reacted negatively to this positive earnings news as the company said it expects its revenue for its March quarter to be down 15 percent sequentially due to the cyclical nature of its business. CRUS fell 11% after the earnings release and is now down some 30% from its recent highs several weeks ago. I believe this cheap stock is "temporarily" on sale and will benefit greatly as Apple sorts out its supply issues.

Key highlights from Cirrus Logic's earning report and aftermath:

  • Earnings after adjustments came in at 81 cents a share from just 10 cents a share in the same period a year ago. Earnings beat consensus estimates by a dime.
  • Revenue more doubled to $193.8mm, better than the $180.8mm consensus sales estimate.
  • The company also issued a third-quarter forecast that beat market expectations, as it expects its revenue growth will more than double year-over-year as it reaches full production for some new products.
  • Stifel Nicolaus reiterated its "buy" rating after the report saying the company remains somewhat insulated given its exposure to Apple.

Cirrus Logic is a fabless semiconductor company that develops signal processing integrated circuits for audio and energy markets.

4 additional reasons CRUS is a bargain at $32 a share:

  1. Earnings are exploding. The company made just $1.36 a share in FY2011 but is on track to make over $3.40 a share this fiscal year. Consensus estimates call for $4 a share in FY2013.
  2. Revenue growth has averaged better than 20% annually over the past five years and the stock has a very low five year projected PEG (.53).
  3. The seven analysts that cover the stock have a median price target of $55 a share on CRUS, 70% above the current stock price.
  4. Earnings estimates have risen sharply for both FY2012 and FY2013 over the past three months and the stock is selling at 8x forward earnings. It has a solid balance sheet with over $130mm in net cash on the books.
Source: Cheap iPhone 5 Supplier Is Temporarily On Sale