Austin, Tex.-based Cirrus Logic, Inc. (CRUS) is a fabless semiconductor company that provides low-power, high-precision mixed-signal processing solutions in the United States and internationally. In comparison, Silicon Laboratories Inc. (SLAB), which is also headquartered in Austin, provides silicon, software, and solutions for the Internet of Things (IoT), industrial, and consumer markets. The company offers analog-intensive, mixed-signal solutions for use in a range of electronic products in various applications for the IoT market.
The ballooning demand for consumer electronics, the evolving gaming industry, and the rising popularity of electric vehicles (EVs) have fostered screaming demand for semiconductors, creating immense scope for chipmakers to garner substantial returns. According to the latest Semiconductor Industry Association (SIA) report, worldwide sales of semiconductors increased 24% year-over-year to $48.8 billion in October 2021. “Annual chip sales and units shipped are projected to reach all-time highs in 2021, with moderate annual growth expected in 2022,” said John Neuffer, SIA president and CEO.
Furthermore, if the proposed Creating Helpful Incentives to Produce Semiconductors for America Act, or CHIPS Act, with an allocation of $52 billion to support domestic semiconductor production and incentives to invest in new semiconductor manufacturing facilities in the U.S. is passed, it should boost the industry significantly. And given the favorable market trends, both CRUS and SLAB should benefit.
Over the past six months, SLAB’s stock has gained 44.2% in price, while CRUS has returned 16.1%. And in terms of the past year’s performance, SLAB is again the winner with 61.6% gains versus CRUS’s 13%. However, CRUS’ 16.6% gains over the past month compare with SLAB’s 1.7% slump.
But which stock is a better buy now? Let’s find out.
In October, CRUS announced that Raghib Hussain had been named to the company’s Board of Directors. Hussain previously served as president, Products, and Technologies for Marvell Technology, Inc. (MRVL). Before that, he served as a co-founder, chief technology officer, and chief operating officer of Cavium Inc. He holds more than 40 patents in the fields of networking and security. With strong technical expertise and knowledge, Hussain should prove valuable to the company.
On December 15, SLAB and Memfault, a specialist in cloud-based diagnostics for embedded devices, announced their partnership, integrating enhanced development and operations management tools and enabling advanced MCU-based applications to de-risk development. This partnership should allow SLAB to offer enhanced services solutions to its customers.
Recent Financial Results
CRUS’ net sales increased 34.1% year-over-year to $465.89 million in its fiscal second quarter, ended September 25. Its income from operations stood at $95.20 million, up 48.4% from the same period last year. And its net income grew 43.1% from its year-ago value to $85.10 million. The company’s non-GAAP EPS increased 44.4% year-over-year to $1.82.
For its fiscal third quarter, ended October 2, SLAB’s revenues increased 39.3% year-over-year to $184.83 million. Its loss from continuing operations declined 26.1% from its year-ago value to $19.74 million. And its net income increased 65,904.3% from the same period last year to $2.09 billion. The company’s non-GAAP EPS came in at $0.34.
Past and Expected Financial Performance
CRUS’ revenues and EPS have grown at CAGRs of 2.7% and 37.4%, respectively, over the past three years. Analysts expect CRUS’ revenue to increase 21.2% in the next quarter, 17.5% in the current year, and 7.7% in the following year. The company’s EPS is expected to grow 36.4% in the next quarter, 17.7% in the current year, and 6.3% in the next year. And its EPS is expected to grow 11% per annum over the next five years.
In comparison, SLAB’s revenues have grown at 6.6% CAGR over the past three years, while its EPS declined at a 12.8% CAGR over the same period. Analysts expect the company’s revenue to decline 18.2% in the next quarter and 8.7% in the current year. However, the Street expects its revenue to grow 8.5% in the next year. And the company’s EPS is expected to decline 33.3% in the current quarter, 52.7% in the next quarter, and 34.6% in the current year. SLAB’s EPS is expected to grow 10.2% per annum over the next five years.
SLAB is more profitable with gross profit and net income margins of 59.41% and 205.99%, respectively, compared to CRUS’ 50.90% and 15.89%.
However, CRUS’ 17.38%, 8.55%, and 10.96% respective ROE, ROA, and ROTC compare with SLAB’s 2.27%, 2.05%, and 2.37%.
In terms of forward EV/Sales, SLAB is currently trading at 6.99x, which is 56.5% higher than CRUS’ 3.04x. Also, SLAB’s 46.07 forward EV/EBITDA ratio is 73% higher than CRUS’ 12.43.
Thus, CRUS is relatively affordable here.
CRUS has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, SLAB has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Both stocks have a Quality grade of B, owing to their higher-than-industry profit margins. CRUS’ 28,93% levered FCF margin is 145.5% higher than the 11,78% industry average. In comparison, SLAB’s 47.49% levered FCF margin is 303% higher than the industry average.
CRUS has a B grade for Sentiment, which is consistent with favorable analysts’ expectations about the stock. SLAB has a C grade for Sentiment. Mixed analysts’ sentiment about the stock justifies this grade.
Of the 100 stocks in the Semiconductor & Wireless Chip industry, CRUS is ranked #14, while SLAB is ranked #72.
Unprecedented demand for semiconductors and favorable government policies are expected to support CRUS’ and SLAB’s long-term growth. However, its lower valuation and favorable analysts’ expectations we think make CRUS the better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.
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SLAB shares were trading at $195.30 per share on Thursday afternoon, down $8.14 (-4.00%). Year-to-date, SLAB has gained 53.37%, versus a 26.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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