Story updated at 10 a.m. to reflect market activity.
Shares of Cree fell 0.2 % to $55.85 in morning trading.
The firm raised its price target for the chipmaker to $70 from $66. Analyst Avinash Kant said Cree's business fundamentals are likely to improve.
"Positioned as a dominate player in the LED general market, we expect strong growth in CREE's business over the next five years as adoption ramps," Kant wrote. "While we do not expect gross margins to improve, we believe a more normal decline in LED pricing and constant cost improvement initiatives should stabilize gross margins. We arrive at our $70 price target (previously $66) by applying a 25x multiple to our newly introduced CY15 EPS estimate of $2.40 and adding $9.61 in net cash per share."
Separately, TheStreet Ratings team rates CREE INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CREE INC (CREE) a BUY. This is driven by some important positives, 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 good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 5.2%. Since the same quarter one year prior, revenues rose by 19.9%. 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 5.08, 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 ($1.66 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 74.9% when compared to the same quarter one year prior, rising from $20.40 million to $35.68 million.
- Net operating cash flow has slightly increased to $98.75 million or 6.63% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -9.59%.
- You can view the full analysis from the report here: CREE Ratings Report