Wednesday’s Top Upgrades (and Downgrades): Cree, Inc. (CREE), Harris Corporation (HRS), AeroVironment, Inc. (AVAV)

Page 1 of 2

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines include downgrades for defense contractors AeroVironment, Inc. (NASDAQ:AVAV) and Harris Corporation (NYSE:HRS). Meanwhile, though…

Cree, Inc. (NASDAQ:CREE)LCD specialist Cree lights up the scoreboards
Great news for Cree, Inc. (NASDAQ:CREE) shareholders this morning: Wall Street likes your stock again. In twin announcements Tuesday, Cree confirmed that it’s going to begin selling a new LED lightbulb, exclusively through The Home Depot, Inc. (NYSE:HD), and for the low, low price of less than $10. Even better, Cree’s so convinced this product will be a success that it’s upped its revenue guidance for the fiscal third quarter (that’s the one we’re in now) to a new range of from $335 million to $350 million — and on stable gross margins of perhaps 39.5%.

Wall Street loves the news, with Credit Agricole upping its rating from underperform to outperform in a Paris minute yesterday, and Goldman Sachs Group, Inc. (NYSE:GS) praising the company’s new “price points as very competitive” and hiking its own price target for Cree stock to $48. This morning, a third analyst joined the Cree fan club, as UBS went a step further and projected Cree, Inc. (NASDAQ:CREE) shares will hit $51 before a year is out.

Are they right? Well, let’s see here. According to StreetInsider.com, Cree thinks it can earn between $0.16 and $0.21 per share this quarter ($0.31 to $0.36 pro forma). If it’s right, that would work out to at least a double in GAAP profit over last year’s Q3 levels, and perhaps an increase of 162%. Even pro forma, the growth rate would exceed 50%. Either way, that’s a whole heck of a lot faster than the 37% earnings growth Wall Street has Cree pegged for this year, and suggests there’s reason for the analysts’ optimism.

Granted, at 108 times earnings, Cree shares don’t look like much of a bargain on the surface. But if you value the company on its remarkably strong (four times GAAP earnings) free cash flow, and credit it for its strong cash reserves ($886 million, with no debt in evidence), the stock actually looks pretty fairly priced at 20% projected growth, and an enterprise value-to-free-cash-flow ratio of just 19.4. In short, I wouldn’t short Cree, Inc. (NASDAQ:CREE) on this rally. This stock’s not nearly as expensive as it looks.

AeroVironment crashes and burns
If only I could say the same for small unmanned aerial vehicle specialist AeroVironment, Inc. (NASDAQ:AVAV), which yesterday missed earnings badly, then compounded the fumble with a prediction hat fiscal 2013 earnings will come in at just $0.42 a share — down from earlier projections of $1.43. The news prompted an immediate cut in price target by FBR Capital, which slashed expectations by nearly half, and said AV investors will be lucky if their shares are worth even $19 a year from now. BB&T Capital seconded the emotion, pulling its buy rating and downgrading AV to “hold.”

But is the news really as bad as all that? Well… no, actually. It’s not — but it’s certainly bad enough.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!