Wall Street Weighs In On Cree's Lackluster Guidance

Cree, Inc. CREE shares tumbled 16% on Wednesday after the chipmaker beat earnings and sales estimates for the fiscal fourth quarter but disappointed Wall Street with a lackluster outlook.

Cree reported fourth-quarter adjusted EPS of 11 cents on revenue of $251 million. Both numbers beat consensus analyst estimates of 10 cents and $248 million, respectively. However, Cree guided for a fiscal first-quarter EPS loss of 5 cents on revenue of $240 million, well short of the 14 cents in EPS and $260 million in revenue analysts had anticipated.

Several analysts have weighed in on Cree stock following the disappointing report. Here’s a sampling of what they’ve had to say.

Voices From The Street

Canaccord Genuity analyst Jed Dorsheimer said weakness from Huawei continues to weigh on Cree’s business, but an EV shift to Silicon carbide should create a long-term growth opportunity for Cree. Dosheimer said Cree’s inability to ship to Huawei has created a $15 million-per-quarter near-term headwind.

“While we are disappointed with a reset in FY’20 expectations, we continue to see CREE’s SiC opportunity as the compelling reason to own this name,” Dorsheimer wrote in a note.

JMP Securities analyst Joseph Osha said Cree’s China problems look like they will last longer and be more severe than previously anticipated. However, he said nothing about the China issues changes Cree’s strong competitive market position.

“Our revised model suggests that Cree’s semiconductor business may not return to robust growth until early-to-mid 2021,” Osha wrote.

BMO Capital Markets analyst Ambrish Srivastava said Cree will likely experience the same type of sharp drop in 2020 earnings that the memory group is experiencing. He is projecting gross margins will continue to shrink from 26.6% in the fourth quarter to 30.8% next year.

“The China EV market is putting another big dent in the SiC business and LED weakness does not appear to have any end in sight,” Srivastava wrote.

Ratings And Price Targets

• Canaccord Genuity has a Buy rating and $72 target.
• JMP Securities has a Market Perform rating and no target.
• Canaccord Genuity has a Market Perform rating and $50 target.

Cree's stock traded lower by 16.1% to $48.83 per share at time of publication.

Related Links:

BMO Downgrades Cree On Valuation, Says LED Maker Has Unique Positioning

Goldman Sachs: Acuity Brands' Risk-Reward Profile Has Turned Unfavorable