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Factors Likely to Impact Cirrus Logic's (CRUS) Q2 Earnings

Cirrus Logic Inc. CRUS is slated to release second-quarter 2018 results on Nov 2.

The company has an excellent earnings surprise history, with an average positive surprise of 21.9% in the trailing four quarters. Cirrus Logic scored its 13th consecutive earnings beat in the last reported quarter, beating estimates by 22.7%. Itstotal revenuesincreased approximately 23.6% year over year to $320.7 million and also marginally surpassed the Zacks Consensus Estimate of $320 million.

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 $1.19 per share, which is 11.9% down from year-ago period figure. Further, analysts polled by Zacks expect revenues of $410 million, down roughly 4.4% from the year-ago quarter.

Factors at Play

Cirrus Logic is a premier supplier of high-performance analog circuits and advanced mixed-signal chip solutions. The company has broadened product portfolio. Its chips are used in DVD players/recorders, disc drives, sound chips for computers, XBox, professional audio, mobile technologies and voice transmission.  Notably, the company is a major chipset provider to Apple Inc. AAPL and Samsung as it generates a significant portion of revenues from them. Consequently, we believe that new products are likely to drive sales in the forthcoming quarter.

We also note that customer base has diversified in recent times. At the end of fiscal 2017, top 10 direct customers accounted for approximately 92% of its revenues as compared with 89% at the end of fiscal 2016. This bodes well for the to-be-reported quarter’s top-line.

Continued investments in the audio segment have also helped the company to come up with innovative products from time to time. Portable audio product revenues (88% of the total revenues) came in at $280.7 million, up 29.9% year over year in the last reported quarter. This aids in attracting new customers and brings in additional revenues. Additionally, expansion in the LED market continues to drive growth.

However, as Cirrus Logic generates a significant portion of revenues from Apple, there is always an inherent risk of losing an Apple design contract, which will significantly hurt its financials. Moreover, sluggish economic growth, as well as IT spending may affect performance, going forward.

Furthermore, the company faces competition from the likes of Texas Instruments Inc. and STMicroelectronics N.V., which also remains a concern.

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 beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP for the company is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.19 per share cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cirrus Logic Paper has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the 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:

NVIDIA Corporation NVDA has an Earnings ESP of +0.53% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMTEK, Inc. AME has an Earnings ESP of +0.18% and a Zacks Rank #3.

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