January 29, 2019 | 3:09 PM by Jay Kunstman | jkunstman@jaguaranalytics.com

Cree Inc. (CREE) – Tracking The Wolf

Cree, who operates through three main segments: Lighting Products, LED Products, and Power and RF Products, will be reporting Q2 earnings on Wednesday after the close. Based on the company’s last earnings call, it’s evident that all eyes will once again be on the company’s Wolfspeed business.

From CFO Neill Reynolds: “Our capital allocation priorities remained focused on expanding capacity in our Wolfspeed business. For fiscal 2019, we still target capital investment of approximately $220 million, primarily driven by expanding Wolfspeed’s production capacity to support forecasted long-term customer demand.”

Ahead of earnings, a handful of analysts have issued preview notes:

JPMorgan – Analyst Paul Coster, who has an Underweight Rating and $35 PT, expects CREE to post Q2 results in-line with expectations, and there could be some upside in lighting if CREE saw pull-in demand ahead of tariffs, akin to that experienced by Acuity Brands (AYI). However, focus will remain on Wolfspeed organic growth, gross margin sustainability, and deal pipeline, with nice momentum generated by new multi-year agreement with STMicroelectronics (STM).

JMP Securities – Analyst Joseph Osha, who downgraded the stock this morning to Market Perform due to valuation, does not foresee any problems coming for Cree’s results. Their expectations for the LED and lighting equipment businesses are modest, but as they have pointed out neither business is terribly consequential for Cree’s valuation overall. The main focus will be the company’s SiC numbers, and JMP believes the company is booked out through the end of 2020. They also add, “It is to Cree’s credit that the company has resisted the urge to extract every penny from its customers, choosing instead to trade reasonable pricing for longer-term relationships.”

Roth Capital – Analyst Craig Irwin, who has a Buy Rating and $60 price target, expects Cree to report healthy Q2 earnings, but says don’t expect revenue upside due to headwinds from both lighting fixtures markets and China trade tariffs. Instead, Wolfspeed will remain the key driver of value at Cree, where $430M in announced SiC wafer purchase commitments will help drive confidence in an accelerating market. Roth sees visibility for 50+ SiC MOSFET design wins ramping across the industry in 2019 as a key catalyst and, as a result, would be buyers at current levels.

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