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 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!