Options Trade – Cree, Inc. (NASDAQ:CREE) Calls
Monday, June 23, 2014

**OPTIONS TRADE: Buy the CREE Dec 2014 50.000 call (CREE141220C00050000) at or under $4.50, good for the day. Place a protective stop limit at $1.80 and a pre-determined sell at $9.00.

by Ian Harvey

June 23, 2014


Cree, Inc. (NASDAQ: CREE) has taken a battering since taking an earnings-induced tumble in late April, which has left it in a position where options are at a bargain.

There is a considerable amount of bullish positioning toward a stock that's down 21% year-to-date. There is also unsubstantiated takeover chatter surrounding CREE.

There are certainly plenty of positive factors for CREE:-

• The revenue growth came in higher than the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 16.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

• CREE has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 5.48, which clearly demonstrates the ability to cover short-term cash needs.

• The net income growth from the same quarter one year ago has exceeded that of the Semiconductors & Semiconductor Equipment industry average, but is less than that of the S&P 500. The net income increased by 27.1% when compared to the same quarter one year prior, rising from $22.16 million to $28.16 million.

• The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, CREE INC's return on equity significantly trails that of both the industry average and the S&P 500.


Cree last released its earnings data on Tuesday, April 22nd. The company reported $0.39 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.38 by $0.01. The company had revenue of $405.20 million for the quarter, compared to the consensus estimate of $407.28 million.

During the same quarter in the previous year, the company posted $0.34 earnings per share. The company’s revenue for the quarter was up 16.1% on a year-over-year basis. On average, analysts predict that Cree will post $1.64 earnings per share for the current fiscal year.

Insider Activity

Director John Replogle purchased 1,250 shares of the stock in a transaction dated Monday, May 12th. The shares were purchased at an average cost of $46.29 per share, for a total transaction of $57,862.50. Following the purchase, the director now directly owns 6,794 shares in the company, valued at approximately $314,494.

Analysts Opinions

TheStreet Ratings team rates CREE INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate CREE INC (CREE) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."

Also, the company has been the subject of a number of research reports:-

• Cree’s stock had its “overweight” rating reaffirmed by JPMorgan Chase & Co. in a research note issued on Wednesday, 14th May, 2014. They currently have a $61.00 target price on the stock, down from their previous target price of $72.50. JPMorgan Chase & Co.’s target price points to a potential upside of 34.33% from the company’s current price.

• Analysts at Gabelli upgraded shares of Cree from a “hold” rating to a “buy” rating in a research note on Thursday, May 8th.


Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the CREE Dec 2014 50.000 call (CREE141220C00050000) at or under $4.50, good for the day. Place a protective stop limit at $1.80 and a pre-determined sell at $9.00.

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