CREE To Report Q2 Earnings: What Lies Ahead For The Stock?

Cree Inc. (NASDAQ:CREE) is set to report second-quarter fiscal 2018 earnings results on Jan 23. In the last reported quarter, the company delivered a positive earnings surprise of 33.3%.

Cree reported non-GAAP earnings of 4 cents per share in first-quarter fiscal 2018, which beat the Zacks Consensus Estimate by a penny. However, earnings were significantly down from 15 cents reported in the year-ago quarter.

The company’s revenues totaled $360 million, down 2.9% year over year. The figure missed the Zacks Consensus Estimate of $361 million by a slight margin.

Expect What?

The Zacks Consensus Estimate for the quarter is pegged at 1 cent, reflecting a year-over-year decline of 95%. However, the Zacks Consensus Estimate for revenues is pegged at $350 million, up roughly 0.9% from the year-ago quarter.

Let’s see how things are shaping up prior to this announcement.

Factors Likely to Influence Q2 Results

Growing demand for LED products, recovery in utilization rates and continued cost cutting measures from the company’s end is expected to positively impact to-be-reported quarter results.

We believe that Cree’s cross licensing agreements will help the company to drive innovation. Further, it will aid the company to gain better traction, resulting in top-line growth.

Cree remains focused on driving growth in LED business. The company’s lighting products have been gaining traction among the likes of McLaren Health Care, American Airlines Center, Quest, Food Bank of Central & Eastern North Carolina and Reston Hospital center in the past year.

Per another report by MarketsandMarkets, worldwide LED lighting market is projected to be worth a whopping $92.40 billion by 2022 at a CAGR of 13.66%.

Cree has three reportable segments — Lighting Products, LED Products and Wolfspeed.

Lighting Products revenues of $149.7 million, which accounted for 42% of total revenues, were down 19% on a year-over-year basis. The Zacks Consesus Estimate for Lighting Products is pegged at $140 million.

LED Products revenues were $144.5 million, up 5% a year-over-year basis, and accounted for 40% of total revenues. The Zacks Consesus Estimate for LED Products is pegged at $141 million.

Wolfspeed revenues surged 33% year over year to $66.2 million and accounted for 18% of total revenues. The Zacks Consesus Estimate for Wolfspeed is pegged at $67 million.

Why a Likely Positive Surprise?

Our proven model shows that Cree is likely to beat earnings because it has the right combination of two important ingredients.

Zacks ESP: Cree’s Earnings ESP is +40.00%. A favorable ESP serves as a meaningful and leading indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cree currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Cree’s Zacks Rank #3 and +40.00% ESP makes us reasonably optimistic of an earnings beat.

Some Other Stocks With Favorable Combination

Here are some other companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Western Digital Corporation (NASDAQ:WDC) , with an Earnings ESP of +0.83% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation (NASDAQ:NVDA) , with an Earnings ESP of +1.93% and a Zacks Rank of 3.

Helmerich & Payne, Inc. (NYSE:HP) , with an Earnings ESP of +11.62% and a Zacks Rank of 3.

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