Cree shares plunge on 3Q profit and disappointing 4Q outlook

Shares of chip maker Cree Inc. plunged Wednesday after it said its fiscal third-quarter profit tumbled 73 percent and offered a disappointing fourth-quarter sales forecast.

Shares of the Durham, N.C.-based company fell $4.64, or 14.9 percent, to close at $26.42. They have traded in the last year between $17.17 and $35.50.

ThinkEquity analyst Mike Burton said in a note to investors that that the company had strong third-quarter revenue but said that inventory levels grew again and the company had negative free cash flow.

Deutsche Bank analyst Carter B. Shoop said the company is doing a decent job in its transformation to a fully integrated lighting company but said there were still many potential potholes in the road.

He reiterated his "Hold" rating and lowered his price target to $24 from $26. His new price implies that he thinks the stock could decline about 6.8 percent from current levels.

"In addition to cost overruns, we believe investors are disappointed with Cree's weak sales growth forecast, rapidly deteriorating balance sheet...and poor free cash flow," he said.

Cree makes chips and other components for Light Emitting Diodes, a low-energy alternative to conventional lighting.