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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

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!