Cree Holds First Earnings Call With New CEO

Bank of America Merrill Lynch presented its key takeaways from Cree, Inc. CREE's first earnings call with new CEO Gregg Lowe. BofA reiterated its Neutral rating on shares, but nudged up its price target from $31 to $32.

Lowe's Maiden Earnings Call

Analysts Krish Sankar and Chirag Odhav believe the new CEO has the potential to revive the company. The key takeaways from Lowe's maiden earnings call:

• The December quarter guidance was below Street expectations;
• Management intends to focus on adding capacity to Wolfspeed. The analysts expect further details on how the company intends to move the overall business forward after the completion of the strategic review in a few months;
• Dragged by hurricanes and warrantee costs, U.S. lighting business remains soft, with a 7 percent sequential decline estimated currently; and
• To achieve Wolfspeed capacity expansion targets, the company is targeting capital expenditure of $220 million.

See Also: Cree, A Long-Term 'Hope Trade' With Near-Term Problems

Strong Results, Sour Guidance

BofA noted that the mid-point of the FQ2 revenue and non-GAAP earnings per share guidance trailed the Street estimates.

The firm also noted that the company is within healthy limits of its covenants and can borrow additional balance if needed to meet the capital expenditure guidance. Free cash flow for FY18 is expected to be about $20 million, the firm said.

As such, BofA made adjustments to its model, lowering its revenue estimates for fiscal years 2018-2020 and the earnings per share estimate for fiscal year 2018. The analysts raised bottom line estimates for fiscal year 2019 and 2020.

"Although challenges still remain, and there are many moving parts to the business, we see the new CEO as a positive for the company," the firm said. "We still believe splitting the lighting segment from the capital intensive LED products/ Wolfspeed segment makes sense so that LED products can regain customers who compete with the lighting segment."