Sterne Agee Comments On Worse-Than-Anticipated March Quarter For Cree

According to Sterne Agee, Cree (NASDAQ: CREE) pre-announced the March quarter yesterday and lowered its revenue and gross margin guidance.

Sterne Agee reported that, despite the already negative sentiment on the stock, the news was clearly much worse than anticipated. “Revenue was negatively impacted by pricing pressure and weaker than expected demand. Margins were negatively impacted by pricing pressure and lower than expected factory utilization. Inventory levels should increase Q/Q given the revenue miss late in the March quarter. We are sticking with our target P/E of 30X forward 12 month EPS. Though a 30X multiple is far too rich today, if our model is correct, then: 1) the Mar-11 quarter should be a trough with sequential compares improving going forward; and 2) 12 months from now, quarterly EPS growth will be in the range of 50%-60%, in which case, the multiple will make much more sense. Based on our new fiscal 2013 EPS estimate of $2.54 (down from $2.90), we are lowering our target price to $76 from $87.”

Cree closed yesterday at $42.90.