Cree Earnings Preview

Investors braced for a bumpy ride ahead of Cree's (Nasdaq: CREE  ) earnings announcement as the company has wavered between beating and falling short of analyst predictions during the past fiscal year. The company will unveil its latest earnings on Tuesday, Oct. 18. Cree develops and manufactures semiconductor materials and devices mainly based on silicon carbide, gallium nitride, and related compounds.

What analysts say:

  • Buy, sell, or hold?: The majority of analysts back Cree as a buy. But with 57.7% of analysts rating it a buy, Cree is still below the mean analyst rating of its nearest 10 competitors, which average 59.7% buys. Analysts don't like Cree as much as competitor ON Semiconductor overall. Thirteen out of 18 analysts rate ON Semiconductor a buy compared to 15 of 26 for Cree. Analysts still rate the stock a hold, but they are a bit more wary about it compared to three months ago.
  • Revenue forecasts: On average, analysts predict $268.8 million in revenue this quarter. That would represent a rise of 0.1% from the year-ago quarter.
  • Wall Street earnings expectations: The average analyst estimate is earnings of $0.16 per share. Estimates range from $0.11 to $0.20.

What our community says:
CAPS All-Stars are solidly behind the stock with 94% giving it an "outperform" rating. The community at large agrees with the All-Stars with 92.7% granting it a rating of "outperform." Fools are gung-ho about Cree and haven't been shy with their opinions lately, logging 524 posts in the past 30 days. Despite the majority sentiment in favor of Cree, the stock has a middling CAPS rating of three out of five stars.

Management:
Cree's profit has risen year over year by an average of 25.8% over the past five quarters. Revenue has fallen in the past two quarters. The company's gross margin shrank by 11.4 percentage points in the last quarter. Revenue fell 8.2% while cost of sales rose 12.6% to $150.3 million from a year earlier.

Now let's look at how efficient management is at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. The following table shows gross, operating, and net margins over the past four quarters.

Quarter

Q4

Q3

Q2

Q1

Gross Margin

38.1%

41.7%

47.1%

48.6%

Operating Margin

8.3%

9.0%

21.6%

27.3%

Net Margin

8.2%

8.6%

19.4%

21.6%

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