Start Buying Cirrus Logic (CRUS) Due To Consistent Spike In EPS

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Cirrus Logic (CRUS) develops integrated circuits for specialized applications in consumer entertainment devices.Its products include graphics accelerator chips, CD-ROM circuits, chips for advanced disk drives, host adapters for portable computers, encoders, switches, controllers, and analog-to-digital converters. The company markets its products to original equipment manufacturers (OEMs) of computers and electronics in the United States and overseas.The model rates stocks one to ten, with 10 being the best using a system of advanced mathematics to determine a stock’s expected risk and return. I am using different fundamental and technical factors in order to rank a stock.

Intrinsic Value

Investors should buy stocks selling at a discount to their intrinsic value, and then patiently wait for the fair value of their investments to be realized. CRUS’s intrinsic value is $52.14, the current price is $37.49.

Financials

The financial health of the company the higher the better. CRUS has a quick ratio of 2.75 and a current ratio of 3.69. These depicts good management of assets relative to their liabilities. CRUS gets a good mark on this criterion. The ROA, ROE and ROI are 16.45%, 19.67%, and 19.43% respectively. Gross margin, operating margin, and profit margin are 54.47%, 17.45%, and 19.77% respectively.

Analyst Ratings

The model assigns a value according to analyst’s recommendation for the stock.
Recently, a BUY rating was reiterated by various investment analysts.
On September 18, Needham reiterated a BUY rating based on the expected increase in stock price range $47 to $53.On September 17, Feltl & Co. reiterated its BUY position on CRUS due to an estimated increase in price range $46 to $54.  On September 14, Canaccord Genuity reiterated a BUY rating range $43 to $48.  On September 13, Stifel Nicolaus reiterated a BUY rating range $45 to $50.The last downgrade was on July 2, 2012 by Oppenheimer range outperform to perform.

Earnings Consistency

According to this model, each year’s EPS numbers should be better than the previous year’s. One dip is allowed, but the following year’s earnings should be a new high. CRUS annual EPS for the last 5 years (earliest to the most recent fiscal year) were (0.07), 0.05, 0.59, 3.00, 1.35. EPS in 2012 decreased to 1.35 3.00. However, there is incremental growth in the EPS since 5 years ago. CRUS passes this criterion.

EPS Quarter Over Quarter

There is an increase of -22.42% in EPS quarter over quarter. This is beneath the minimum 18% that this model likes to see for a “good” growth company. Also, EPS this year decreased by -54.20%. CRUS entirely fails in this category.

Annual Earnings Growth

This model looks for annual earnings growth above 15%, but prefers higher than 25%. CRUS’s annual earnings growth rate over the past five years of 18.55. This is a median number compared to our principle.

Current Price Level

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. CRUS’s 52 week high is $45.49 while, current price is $37.49. The stock is currently trading at -17.59% of its 52W high and 172.65% of its 52W low.

 P/E Ratio and PEG

The Price/Earnings (P/E) ratio is based on the greater of the current PE or the PE using average earnings over the last 3 fiscal year. This must be “moderate”, which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. PEG is the Price/Earnings Growth which is a derivative of the P/E ratio. It indicates the potential for future growth in earnings. It should not be higher than 1. The company is currently trading at a P/E of 29.59 times, above the moderate level of P/E. This is also higher compared to industry average of 16.6 times. It has a PEG of 1.69.

Insider Ownership

When there is strong insider ownership which I define as 12% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. CRUS has outstanding capital stock of $64.59 million. Only 0.21% is owned by insiders.

Technical Analysis

I am using several technical indicators (MACD, RSI, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

I am using several technical indicators (MACD, RSI, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.