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TheStreet Open House

Why Cree Inc. Tumbled on Monday

NEW YORK (TheStreet) -- Cree Inc. (CREE) tumbled on Monday following an analyst downgrade from Stifel. By late afternoon, shares had taken off 9.5% to $60.81.

Stifel cut the semiconductor company to a "hold" rating on the view the near-term set-up was too shaky.

"We see March EPS consensus estimates of $0.40, up sequentially as too lofty given seasonal weakness in outdoor/Chinese New Year, as well as mix shift to HD channel during the March [quarter], which should allow flat to up revenues but have a negative effect on EPS, not a positive impact as consensus expects," analyst Jeffrey Osborne wrote in the report.

TheStreet Ratings team rates CREE INC as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate CREE INC (CREE) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 9.7%. Since the same quarter one year prior, revenues rose by 23.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CREE has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 5.02, which clearly demonstrates the ability to cover short-term cash needs.
  • CREE INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, CREE INC increased its bottom line by earning $0.74 versus $0.38 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus $0.74).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 89.2% when compared to the same quarter one year prior, rising from $16.12 million to $30.50 million.
  • 46.79% is the gross profit margin for CREE INC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, CREE's net profit margin of 7.79% significantly trails the industry average.

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