A month has gone by since the last earnings report for Cree (CREE - Free Report) . Shares have added about 4.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cree due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cree Beats on Q4 Earnings & Revenues
Cree delivered non-GAAP earnings of 11 cents per share in fourth-quarter fiscal 2019, which surpassed the Zacks Consensus Estimate of 10 cents.
Revenues came in at $251.2 million, down 5% year over year. However, the figure outpaced the Zacks Consensus Estimate of $248 million.
Cree had concluded the divestiture of Lighting Products business unit (or Cree Lighting) to IDEAL INDUSTRIES, Inc. The agreement includes the company’s LED lamps, corporate lighting solutions, and lighting fixtures aimed at industrial, consumer and commercial end-markets.
Cree Lighting will be reported under “discontinued operations.”
Cree now has two reportable segments – Wolfspeed and LED Products.
Wolfspeed revenues surged 22% year over year to $134.2 million and accounted for 53% of total revenues.
LED Products revenues were $117 million, down 25% on a year-over-year basis and accounted for 47% of total revenues. Weakness in worldwide trade uncertainties affected segmental revenues.
Non-GAAP gross margin was 37%, which expanded 100 bps on a year-over-year basis. Segment wise, LED Products gross margins contracted 300 bps, while Wolfspeed gross margins expanded 200 bps year over year.
Non-GAAP operating margin contracted 300 bps from the year-ago quarter to 4%.
Balance Sheet & Cash Flow
Cree exited fourth-quarter fiscal 2018 with cash, cash equivalents & short-term investments of $1.05 billion as compared with $789.3 million reported in the previous quarter.
During the fourth quarter, cash from operations was $3 million and capital expenditures were $37 million including patents, which resulted in free cash flow of ($34) million.
For the first quarter of fiscal 2020, Cree expects revenues in the range of $237-$243 million.
Non-GAAP loss is projected in the range of 3-7 cents per share.
LED revenues are projected to be down 2% to 4% in first quarter owing to weakness in Asian market. Wolfspeed business is anticipated to be down marginally around 5% to 7% on account of the “Huawei ban and software selling conditions in China.”
Non-GAAP gross margin is targeted at approximately 30.8%. Wolfspeed and LED margins are expected to be 46.3% and 17.5%, respectively, primarily due to lower factory utilization and sales volume.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -525% due to these changes.
At this time, Cree has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cree has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.