How Cirrus Logic Can Win From A Strong Apple iPhone 6S

In a report published Friday, Piper Jaffray analyst Ruben Roy maintained an Overweight rating on Cirrus Logic, Inc. CRUS, with a price target of $44.

Cirrus Logic’s shares have received dipped 6 percent, versus a 4 percent decline in the SOX. The shares came under pressure after Samsung's negative preannouncement.

Analyst Ruben Roy believes that the sell-off was “overdone,” citing two factors:

1. The company’s guidance “is typically conservative relative to industry expectations”
2. Recent press reports suggest that Apple Inc.’s AAPL iPhone 6S unit builds “could be higher than typical”

In the report Piper Jaffray noted, “We believe that CRUS is likely to see a meaningful increase in $ content/iPhone in the upcoming iPhone cycle from a new 55nm chip. Based on this increased content, our sensitivity analysis indicates that every 10m unit increase in iPhone 6S production could yield $0.07-$0.08 in incremental EPS for CRUS.”

Roy expects the new iPhone to use a “next-gen CRUS smart codec” that includes “its latest audio codec, DSP and software in a 55nm design.” This would be a highly integrated device that provides improved audio performance “while using a fraction of the board space.”

While the earlier version of the device were selling at around $1, Cirrus Logic has indicates that its next-gen smart codec devices plus embedded software “could yield ASPs in the $2.50-3.50 range.”

Roy added that Cirrus Logic is among “the best long-term technology plays into high volume smartphone OEMs” and recommended “buying the stock on weakness.”