Where is the Logic? (CRUS)

Some would think an earnings report beating the expectations of analysts, combined with future guidance towering above the views of Wall Street and an analyst upgrading their rating, would be enough to propel a stock to positive territory. Earnings season, however, can at times be anything but logical. Cirrus Logic (NASDAQ: CRUS) released second-quarter financial results on October 31, which looked pretty solid on the surface.

The company showed a 91% increase in revenues from the same period last year. Analysts expected the company to report revenues of $180 million, but Cirrus Logic bettered forecasts by $14 million. The company recorded a quarterly profit of 79 cents, which exceeded the views of Wall Street prognosticators by 8 cents. If the quarterly results were not good enough to excite the investment crowd, the company also raised its outlook on the next quarter. Cirrus now expects revenues for the third quarter to be in a range from $270 million to $300 million versus previous guidance that looked for revenues of $237 million.

The analyst covering the stock for Needham and Company raised the rating on the stock from “buy” to “strong buy”. In addition, the analyst raised the price target for Cirrus Logic shares from $53.00 to $57.00. Analysts at Stifel Nicolaus and Canaccord also boosted their price targets on the stock to $56.00 and $52.00 respectively.

However, not everyone on Wall Street saw it the same way. Felt and Company reduced its rating on the stock from “buy” to “hold” along with slashing the price target from $54.00 to $44.00. There appears to be concerns over the fact that 79% of the revenues in the second quarter came from Apple (NASDAQ: AAPL), which may put pressure on future pricing. In a conference call with analysts, Cirrus Logic CEO Jason Rhode stated that it would not be a surprise to have some pricing pressures with growth exceeding expectations.

Traders waking up on Thursday expecting a party found nothing of the sort. Shares of the integrated circuit maker gapped down $3.83 from the October 31 closing price to begin the trading day at $36.95. In the first 30 minutes of trading, the stock hit both an intraday high of $37.74 and the daily low when shares traded for $34.12. Around lunchtime on the east coast, the stock rallied more than a dollar and then spent the remainder of the day trading sideways. On the closing bell, Cirrus stock registered a loss of 11%. For the session, the stock declined by $4.64 to close at a price of $36.14. Over 17 million shares exchanged hands during the day compared to an average daily volume of 2.35 million shares.

On July 30the company guided second-quarter forecasts up substantially and the stock gapped from $30.00 to above $35.00. The buying spree did not subside until the first week in September when shares traded at annual high of $45.49. The 52-week low for the stock is $14.26, which it hit last November.

Cirrus Logic develops signal-processing integrated circuits for audio and energy markets. The company also supplies controllers for LED lighting along with mixed-signal products for applications used in energy exploration. The Austin, Texas-based company was founded in 1984.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).