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Cree (CREE) Hits Fresh High: Is There Still Room to Run?

Zacks Equity Research
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Have you been paying attention to shares of Cree (CREE)? Shares have been on the move with the stock up 27.1% over the past month. The stock hit a new 52-week high of $52.76 in the previous session. Cree has gained 17.9% since the start of the year compared to the 8.8% move for the Zacks Computer and Technology sector and the 14.3% return for the Zacks Semiconductor - Discretes industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on January 30, 2019, Cree reported EPS of $0.23 versus consensus estimate of $0.17 while it beat the consensus revenue estimate by 0.92%.

For the current fiscal year, Cree is expected to post earnings of $0.74 per share on $1.66 billion in revenues. This represents a 289.47% change in EPS on a 11.43% change in revenues. For the next fiscal year, the company is expected to earn $1.27 per share on $1.87 billion in revenues. This represents a year-over-year change of 72.16% and 12.22%, respectively.

Valuation Metrics

Cree may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Cree has a Value Score of F. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 68.2X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 13X versus its peer group's average of 11.5X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Cree currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Cree meets the list of requirements. Thus, it seems as though Cree shares could have a bit more room to run in the near term.

How Does Cree Stack Up to the Competition?

Shares of Cree have been rising, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including Rambus (RMBS), Cirrus Logic (CRUS), and Silicon Motion Technology (SIMO), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Cree. Still, the fundamentals for Cree are promising, and it still has potential despite being at a 52-week high.


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