Cirrus Logic

Cirrus Logic (CRUS), which makes chips that convert analog signals into ones and zeros, and back again, could get a boost from an impending rush in sales of portable audio equipment, or so says Longbow Research analyst Tayyib Shah, who today upgrades the shares from Neutral to Buy, arguing the stock is cheap at 13 times 2008 estimated profit of 35 cents a share.

“The results of our latest Home Audio Survey indicate an earlier than seasonal pick up in sell through,” writes Shah. “Consumer audio (including home audio systems, DTV, portable audio and other applications) accounts for 57% of company revenues.”

He goes on: “The upturn in audio equipment sales is taking place sooner than the normal seasonal pattern this year as consumers are upgrading their systems to enjoy the football season. In our view, the strong interest in flat panel TVs is also leading to complimentary upgrades of sound systems.”

In particular, Shah says Cirrus may be gaining a foothold in portable audio, and in particular, he speculates that the company may have been chosen by Apple (AAPL) to be a “second source” for digital audio decoder chips in some of the iPod products.

Wolfson Microelectronics plc, which trades on the London Stock Exchange, has a larger share than Cirrus in those kinds of chips, notes Shah, but he thinks that with an addressable market of $175 million in CODECs for such portable applications, “even a low 15% share can translate into $26MM in revenues in the FY09 time frame.” To put that in perspective, Cirrus may bring in $195 million in total sales next year, so $26 million would be a measurable contributor to the top line.

Shah’s target price for Cirrus shares is $8.50. Today, the shares are up nearly 8% at $6.93.

Posted by Tiernan Ray