Why Cree Analysts Are Lifting Price Targets Despite Post-Q4 Selloff

Lighting company Cree, Inc. CREE reported mixed fiscal fourth-quarter results Tuesday that prompted a selloff in the stock, but two Street analysts see a brighter future.

The Cree Analysts: Piper Sandler analyst Harsh Kumar maintains a Neutral rating on Cree's stock with a price target lifted from $46 to $65.

Morgan Stanley analyst Craig Hettenbach maintains an Overweight on Cree's stock with a price target lifted from $68 to $74.

Piper Sandler Sees 'Some Progress' From Cree: Cree reported a loss of 18 cents per share on revenue of $205.7 million versus expectations of a 19-cent-per-share loss and revenue of $198.6 million, Kumar said in a note.

Yet gross margins of 26.4% in the quarter missed estimates of 26.1%, while the September quarter-ending gross margin guidance of 26% was notably short of the Street's estimate of 28.4%, the analyst said. 

Cree showed signs of "some progress" in the quarter on Wolfspeed revenue, as the company is seeing incremental demand, he said.

Cree also said it secured around $600 million in new design-in awards in its device business, which is "impressive" given the pandemic, Kumar said. 

However, expectations for any significant gross margin expansion aren't likely to be seen until the end of fiscal 2022 and investors should stick to the sidelines for now, the analyst wrote.

Morgan Stanley Says Cree 'Struck A Bullish Tone': The lighting company's management "struck a bullish tone" in its earnings report, especially around the $600-million new design win, Hettenbach said in a note.

The company remains well-positioned to take advantage of rising SiC adoption, a key catalyst to drive further stock gains the analyst said. 

Cree also said capex will rise from $244 million in fiscal 2020 to $400 million in fiscal 2021, but its total capital investment plans through fiscal 2024 remain unchanged.

A near-term lift in capex is justified after $1 billion in design wins for SiC in the last two quarters alone, according to Morgan Stanley. 

CREE Price Action: Cree shares ended Wednesday's session down 7.5% at $63.31. 

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