Why Cree (CREE) Is Gaining Today

NEW YORK (TheStreet) -- Cree (CREE) jumped 7.5% to $67.59 Wednesday following a second-quarter earnings report that beat Wall Street expectations.

The LED producer reported net earnings of 46 cents a share for the quarter, beating the Yahoo Finance estimates of 39 cents a share. Cree saw revenue of $415 million for the quarter, a 20% year-over-year increase and $2.5 million higher than estimates.

Following the report analyst Andrew Huang of Sterne Agee maintained his "buy" rating for the company and raised his price target to $76 from $72. In his note Huang said the quarterly results "reflect improving fundamentals in lighting products."

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 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 came in higher than the industry average of 0.4%. 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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