Tag Archives: NASDAQ:CREE

Cree: Zacks’ Bull of the Day Play

Cree, Inc. (CREEFree Report) is cashing in on the Internet of things. This Zacks Rank #1 (Strong Buy) recently beat the Zacks Consensus Estimate for the second quarter in a row.

Cree makes LED lighting systems and bulbs, blue and green LED chips, high-brightness LEDs, lighting-class power LEDs, power-switching devices and RF devices.

Second Beat in a Row

On Jan 24, Cree reported its fiscal second quarter 2017 results and beat on the Zacks Consensus Estimate by a penny. Earnings were $0.09 versus the consensus of $0.08. It was the second consecutive beat in a row.

Its combined revenue, including discontinued operations, was $401 million, an 8% decrease compared to the combined revenue of $436 million in the second quarter of fiscal 2016. But it was an 8% increase over the fiscal first quarter of 2017.

It settled a key patent infringement and false advertising lawsuit with Feit Electric which added to earnings in the quarter.

The company is optimistic about the fiscal year saying, “the fundamentals in our business have improved over the last several quarters, and we remain focused on building a larger and more valuable LED lighting company by bringing better light to our customers.”

Estimates Rise for the Full Year

The analyst was bullish on the company after its conference call as the Zacks Consensus Estimate for the full fiscal year 2017 jumped to $0.41 from $0.15 before the earnings call.

Cree has been in a turnaround mode for several quarters. This is just a continuation down that path.

Is a Breakout Coming?

Cree has been trading in a narrow trading range for months and hasn’t managed to break out to a 1-year high let alone a 2-year high.

But it has picked up momentum in recent months. This recent earnings report also added fuel to the shares.

Cree isn’t cheap though. It’s trading with a forward P/E of 67.6.

You’re buying Cree for its growth story though. Earnings estimates have made a turnaround for 2017. Earnings are now expected to grow 5% this year.

For investors looking for a stock in technology and semiconductors, Cree is one to keep on your short list.

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Cree: Zacks’ Bull of the Day Play

Sometimes, companies can experience a dramatic turnaround in a short time frame and go from being losers to top portfolio selections. That has been especially the case with Cree (CREESnapshot Report), a stock that was once a bear of the day in late October of 2014 that has managed to turn its business around to start 2015.

In fact, CREE shares underperformed the market after the bear of the day article and the stock was on rocky footing to start the year. However, YTD CREE shares have soared thanks to a promising earnings report in January which is leading to a positive outlook for the rest of the year too.

CREE Earnings

While the latest earnings report was basically in-line and revenues were flat when compared to the year ago time frame, investors really keyed in on the firm’s outlook. Income was projected to be ahead of Wall Street estimates for the coming quarter, while revenues are also looking up too. Plus, with higher margins seen thanks to a better LED (light-emitting diode) business, prospects are looking bright for CREE in the near term.

Thanks to this, analysts have been raising their estimates for CREE earnings for both the current year and next year time frames. And not a single analyst has pushed their estimates slower for Cree’s earnings, as three estimates have gone higher for both time frames in the past thirty days.

This has translated into a rise for the consensus estimate for both time periods too, as the current year estimate has gone from $0.57/share 30 days ago to $0.62/share today. Meanwhile, for the next year time frame, we have seen the consensus go from $0.92/share to $0.96/share, which would be 54% EPS growth (y/y).

Zacks Rank

With this positive sentiment surrounding CREE and the recent boost in earnings estimates, it shouldn’t be a surprise to note that CREE has earned itself a Zacks Rank #1 (Strong Buy). That means that we are looking for more outperformance from the company in the near term and expect the recent run for this small cap stock to continue.

And if that wasn’t enough for investors, it is important to note that Cree’s industry currently has a Zacks Industry Rank in the top 20% overall. A rising tide tends to lift all boats, and an industry that is well-positioned can help to lift stocks even without impressive company specific fundamentals.

Bottom Line

Cree finds itself as a key player in the quickly growing LED market and it has managed to establish a nice corner of the market. And despite intense competition, the firm has actually seen some margin improvements, which is a great sign for their longer-term hopes.

This is particularly true given that they are raising their earnings and revenue outlooks and that analysts agree with this positive sentiment. So if you haven’t looked at CREE in a while for your portfolio, now might be the time for a second glance as the company is clearly in turnaround mode and could go higher from here if current trends continue.

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Cree: Zacks’ Bear of the Day Play

Cree, Inc. (CREESnapshot Report) recently delivered disappointing fiscal 2015 Q1 results. Not only did the company miss on both the top- and bottom-lines, it guided Q2 EPS well below consensus. This prompted analysts to revise their estimates significantly lower for Cree – a trend that has been occurring for quiet some time now.

Investors should consider avoid this stock at least until its earnings momentum turns around.

Cree, Inc. manufactures lighting-class light emitting diode (LED) products, lighting products and semiconductor products for power and radio-frequency (RF) applications for indoor and outdoor lighting, video displays, transportation, electronic signs and signals, power supplies, inverters and wireless systems.

It reports its results in three segments:

  • LED Products (51% of total revenue in fiscal 2014)
  • Lighting Products (43%)
  • Power and RF Products (6%)

First Quarter Results

Cree reported its fiscal 2015 first quarter results on October 21. Results came in below expectations. Adjusted earnings per share (but including stock-based compensation expense) was $0.13, which missed the Zacks Consensus Estimate by 11 cents. It was a 57% decline from the same quarter last year.

Net revenue rose 9% year-over-year to $428 million, but this was also below the consensus of $435 million. Revenue in the ‘LED Products’ segment, which consists of LED components, LED chips and silicon carbide (SiC) materials, dropped 20% due to weak global demand. However, revenue in the ‘Lighting Products’ segment, which makes LED lighting systems and bulbs, jumped 51%.

Profit margins declined in both the ‘LED Products’ and ‘Lighting Products’ segments. The consolidated gross profit margin fell from 38.6% to 31.8%. This was due to lower units sold and lower pricing in the ‘LED Products’ segment and due to higher sales of LED bulbs in the ‘Lighting Products’ segment, which have lower gross margins.

Estimates Falling

 

Following disappointing fiscal 2015 Q1 results, management guided Q2 EPS well below consensus. This prompted a flurry of negative estimate revisions from analysts, which drove the stock to a Zacks Rank #5 (Strong Sell).

This fiscal 2015 Zacks Consensus Estimate is now $0.57, down from $1.48 just 30 days ago. The fiscal 2016 estimate has plunged from $1.86 to $0.92 over the same period.

These negative estimate revisions are nothing new for Cree. As you can see in the company’s “Price & Consensus” chart, consensus estimates have been falling for a while now:

Valuation

While shares of Cree have sold off heavily so far this year, the valuation picture still does not look very attractive. The stock trades around 44x 12-month forward earnings, which is a premium to its 10-year historical median of 32x. And its enterprise value to cash flow ratio of 9 is well above the industry median of 6x.

The Bottom Line

With weak demand for its main segment of products, declining profit margins, persistently falling earnings estimates and premium valuation, investors should avoid Cree and look for a better opportunity.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.