NEW YORK (TheStreet) -- Shares of Cree (CREE) were falling 10.8% to $27.25 on heavy trading volume Thursday after the company announced it will restructure its LED business, and despite a new new buyback plan.
Cree said it will restructure its LED Products business to "reduce excess capacity and overhead to improve the cost structure moving forward," in response to recent LED market trends leading to higher price erosion than it expected.
The company will also increase its LED reserves to reflect the more aggressive pricing environment in the current quarter and to factor in a more conservative price outlook for fiscal 2016.
Cree expects the $85 million of restructuring charges to be reflected in its operating expenses for the fourth quarter of fiscal 2015 which ends on June 28. The company said it is now targeting revenue of about $375 million for the fiscal fourth quarter, below analysts' estimates of $430.82 million for the quarter.
In the same announcement, Cree said that its board of directors authorized a $500 million share repurchase plan for fiscal 2016.
About 3.9 million shares of Cree were traded by 10:06 a.m. Thursday, above the company's average trading volume of about 2 million shares a day.
TheStreet Ratings team rates CREE INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate CREE INC (CREE) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CREE's revenue growth has slightly outpaced the industry average of 0.7%. Since the same quarter one year prior, revenues slightly increased by 1.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- CREE's debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 4.99, which clearly demonstrates the ability to cover short-term cash needs.
- CREE INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CREE INC increased its bottom line by earning $1.01 versus $0.74 in the prior year. This year, the market expects an improvement in earnings ($1.05 versus $1.01).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income has significantly decreased by 97.7% when compared to the same quarter one year ago, falling from $28.16 million to $0.65 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, CREE INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: CREE Ratings Report