Should Investors Hold Or Fold Cree?

Cree, Inc. CREE will announce its fourth quarter and full year financial results on Tuesday evening, after the market closes, and both the Street and the crowd are expecting them to come in well below management’s guidance, which calls for EPS of $0.26 on revenue of $430 million for the fourth quarter.

With the share price down more than 28 percent in the last six months, should investors hold of fold Cree?

Let’s take a look at some expert opinions.

Deutsche Bank

Deutsche Bank analysts Vishal Shah and Jerimiah Booream-Phelps give Cree a Hold rating and a $29.00 price target. Management recently announced it would restructure its manufacturing business, responding to “ongoing pricing pressure and underutilization in the LED business”. Moreover, the team updated several guidance metrics and announced it will incur in roughly $85 million of restructuring charges over the fourth quarter of 2015 and first quarter of 2016.

The experts see this as “a logical step for the company to take given ongoing underutilization and competitive industry dynamics.” They note a renewed buyback program of roughly $500 million “will help offset some near term weakness, but margins will have to turn around for investors to believe in the longer term story.”

The firm is modeling a net loss of ($0.12) per share on revenue of $$375.4 million for the fourth quarter, and earnings of $0.69 per share on sales of $1.6258 billion for the full year.

Piper Jaffray     

Piper Jaffray’s Mike J. Ritzenthaler rates the stock a Neutral, setting a price target of $28.00. To better reflect the charges associated with the aforementioned operating realignment and cost-cutting plan, the firm trimmed its estimates for the quarter.

Related Link: Cree Has 'More Challenges' Ahead, Says Needham

Expectations now point towards a net loss of ($0.08) per share on revenue of $371.7 million for the fourth quarter, and towards earnings of $0.74 per share on sales of $1.684 billion for the full year.

Gabelli & Company

Unlike their peers, analysts at Gabelli & Company see Cree’s stock as a Buy on the back of the company’s market leading position and the firm’s valuation. However, their expectations are not as high as they used to be as the company “dealt with stronger than expected LED average selling price erosion and a larger than targeted seasonal slowdown in consumer lighting in its June 2014 quarter.”

For the full year, the firm expects to see earnings of $0.70 per share on revenue of $1.626 billion.

JPMorgan

Finally, JPMorgan analyst Paul Coster rates the stock an Overweight, setting a price target of $30.00. He notes the stock offers “growth at a reasonable price.”

Nonetheless, the expert was led to trim his estimates on the back of weaker than expected industry-wide pricing and end market demand for consumer electronics. He now anticipates lower gross margins for the LED products segment, leading to lower earnings in fiscal 2016.

Bottom Line

So, what to do with Cree?

While research firms seem to have diverging views regarding the company and its stock, all the price targets included in this article imply some degree of upside – at least 8 percent.

Investors should assess the risks and decide whether risk/reward profile is attractive enough for them or not.