Cirrus Logic, Inc. (CRUS - Get Rating) and Broadcom Inc (AVGO - Get Rating) are two prominent semiconductor companies that manufacture integrated circuits and semiconductor-based devices in the United States and internationally. CRUS offers portable products for use in smartphones, tablets, digital headset and other devices. AVGO offers infrastructure software solutions to the networking, software, and broadband markets.

As the world  copes with an unprecedented public health crisis, technological advances are enabling the gradual return to some social and economic normalcy. At the heart of many of these advancements lies 5G architecture. An increasing demand for bandwidth amid a remote working environment is pushing the acceleration of 5G deployment. Moreover, demand from the communications, consumer electronics, automotive and healthcare sectors is expected to generate robust business for companies like CRUS and AVGO.

While CRUS returned 16.8% over the past year, AVGO gained 64.9%. In terms of performance over the past six-month, CRUS is the clear winner with 45.9% gains versus AVGO’s 44% returns. But which of these stocks is a better pick now? Let’s find out.

Click here  to check out our 5G Industry Report for 2021

Latest Movements

In November, CRUS’ Board of Directors appointed John Forsyth as the president and chief executive officer of the company. The company also appointed David Tupman as the chair of the Board of Directors. Their strong leadership expertise and strategic vision should help CRUS drive long-term value for its shareholders and customers.

In December, AVGO appointed Tom Krause as the President of its  new Infrastructure Software Group, Charlie Kawwas as the Chief Operating Officer, and Kirsten Spears as the Chief Financial Officer. AVGO believes that these leadership changes should help the company to build on its accomplishments and drive sustainability.

Note that AVGO is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Recent Financial Results

In the fiscal third quarter ended December 26, 2020, CRUS’ net sales increased 29.7% year-over-year to $485.8 million. The company’s gross profit grew 27.3% from the year-ago value to $251.50 million, while its operating income rose 78.4% from the prior-year quarter to $129.65 million. CRUS’ EPS increased 66.9% year-over-year to $1.97 over this period.

AVGO’s revenue has increased 12% year-over-year to $6.47 billion in the fourth quarter ended November 1, 2020. The company’s infrastructure software revenue grew 36% from its year-ago value to $1.64 billion. Its adjusted EBITDA rose 20.9% year-over-year to $3.83 billion, while its non-GAAP net income increased 19.8% from the prior-year quarter to $2.87 billion over this period.

Past and Expected Financial Performance

CRUS’ net income and EPS has grown  at a CAGR of 3% and 6.7%, respectively, over the past three years. Also, the CAGR of the company’s total assets has been 6.9%.

Analysts expect CRUS’ revenue to increase 8.3% in the current quarter, 7.6% in the current year, and 7.5% next year. Its EPS is expected to grow 4.4% in the current quarter, 15.8% in the current year, and 6.5% next year. And  its EPS is expected to grow at a rate of 8.9% per annum over the next five years.

In comparison, AVGO’s net income and EPS have grown at a  CAGR of 20.5% and 16.2%, respectively, over the past three years. The CAGR of the company’s total assets has been 11.8%.

Analysts expect AVGO’s revenue to increase 12.9% in the current quarter, 10.3% in the current year, and 4.2% next year. The company’s EPS is expected to increase 24.8% in the current quarter, 18.3% in the current year, and 7.1% next year. AVGO’s EPS is expected to grow at a rate of 8.6% per annum over the next five years.

Profitability      

AVGO’s trailing-12-month revenue is more than 17 times  CRUS’.

However, CRUS’s ROE and ROA of 15.2% and 8.8%, respectively, compare favorably with AVGO’s 12.1% and 3.7%.

Valuation

In terms of trailing-12-month price-to-book, AVGO is currently trading at 8.2x, 127.8% higher than CRUS, which is currently trading at 3.60x. Also, its trailing-12-month EV/EBITDA of 20.87x is 36.3% higher than AVGO’s 15.31x.

So, CRUS is the more affordable stock.

POWR Ratings

CRUS has an overall rating of A, which translates to Strong Buy in our proprietary POWR Ratings system. However, AVGO has an overall rating of B, which represents a Buy. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Both CRUS and AVGO have a Growth Grade of B, which is consistent with the expected growth in their earnings and revenues.

In terms of Value Grade, CRUS has a B, consistent with its lower-than-industry p/e ratio. AVGO’s Value Grade of C is reflective of its higher-than-industry ev/sales ratio.

CRUS has a B grade for Quality, indicating that it is more profitable than AVGO, which has a grade of C for Quality.

Among the 60 stocks in the B-rated Semiconductor & Wireless Chip industry, CRUS is ranked #1 while AVGO is ranked #5.

Our POWR Ratings system has also rated both CRUS and AVGO for Momentum, Stability, and Sentiment. Get all CRUS’s ratings here.  Click here to see the additional POWR Ratings for AVGO.

The Winner

While AVGO delivered impressive fourth quarter results driven by strong demand for networking from cloud providers and for broadband services. However, its  lofty valuation and lower profitability make it a riskier investment compared to CRUS. So, we think CRUS should perform better in the long run.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the other top rated stocks in the Semiconductor & Wireless Chip industry.

Click here  to check out our 5G Industry Report for 2021

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AVGO shares were trading at $463.72 per share on Friday morning, up $6.56 (+1.43%). Year-to-date, AVGO has gained 5.91%, versus a 2.23% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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