KeyBanc: Apple Supplier Cirrus Logic Has 'Limited Catalysts'

KeyBanc's monthly surveys of iPhone inventories, supply and sell-through looks at the prospects for key Apple Inc. (NASDAQ: AAPL) suppliers such as Cirrus Logic, Inc. (NASDAQ: CRUS), Skyworks Solutions Inc (NASDAQ: SWKS) and Broadcom Ltd (NASDAQ: AVGO).

The Analyst

KeyBanc Capital Markets analyst John Vinh downgraded shares of Cirrus Logic from Overweight to Sector Weight.

The Thesis

The iPhone X supply improved meaningfully and "remains very lean," while sell-through has been disappointing given the higher price points and iPhone 8 promotions, Vinh said in a Sunday note. (See the analyst's track record here.) 

Thanks to generous holiday buy-one-get-one-free promotions, iPhone 8 inventories have remained in check, Vinh said. This in contrast to the analyst's earlier expectations for elevated iPhone 8 inventory levels.

KeyBanc estimates December days of inventory will fall in the range of three to four days, above historical norms, but below the targeted six-to-10-day level. 

Among the iPhone component suppliers, Cirrus Logic is benefiting the least due to "disappointing" iPhone X sell-through and a lack of catalysts, Vinh said. 

"While we believe near-term estimates remain achievable, we see limited stock catalysts over the next year until we get closer to the next major product cycle for CRUS around voice biometrics." 

KeyBanc's fair value for Cirrus Logic is in the range of $50-$55. 

"We see CRUS fair value of $50-$55."

Vinh recommends investors continue to own Apple, Broadcom and Skyworks Solutions.

Notwithstanding the lukewarm outlook for the iPhone X, overall iPhone demand appears in line with KeyBanc's estimate of 237 million units in 2018, the analyst said. The mix of iPhones through the new cycle is crucial in determining future pricing power and in turn future earnings growth potential, Vinh said. 

Gross margin remains key to Apple in the near-term, and Vinh said he "continues to see potential upside" for the stock. 

The Price Action

Apple shares are up over 48 percent over the past year. This compares to Skyworks Solutions' 35-percent gain and Broadcom's 54-percent advance. In the same timeframe, Cirrus Logic is down over 7 percent.

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Photo courtesy of Apple.