Cree, Inc. (NASDAQ:CREE) is off to a good start in 2019 courtesy of the recently announced multi-year silicon carbide wafer deal signed with STMicroelectronics NV (NYSE:STM).
The agreement will allow Cree to supply its Wolfspeed silicon carbide (SiC) wafers to global semiconductor firm, STMicroelectronics. 50mm Epitaxial and Silicon carbide wafers worth roughly $250 million will be supplied through the deal. The market is currently experiencing a unique period of demand and growth for silicon carbide devices.
STMicroelectronics CEO Jean-Marc Chery stated that his company is the only semiconductor manufacturer that currently mass-produces automotive-grade silicon carbide. He also added that the company wants to continue growing its silicon carbide business. The company’s goal is to become the market leader with a market share worth $3 billion by 2025.
“This agreement with Cree will improve our flexibility, sustain our ambition and plans, and contribute to boosting the pervasion of SiC in automotive and industrial applications,” stated Jean-Marc.
Cree CEO Gregg Lowe stated that his company will continue to focus on boosting silicon carbide adoption. He also claims that the silicon carbide wafer deal with STMicroelectronics is proof that the company is pursuing its mission. It also happens to be the third multi-year deal that Cree has secured over the past 12 months. The deals are aimed at supporting the shift from silicon to silicon carbide.
Cree is currently the global leader in silicon carbide and it is determined to continue expanding its capacity in line with the growing market demand. Most of the silicon carbide demand in the market comes from automotive and industrial applications. Lowe pointed out that Cree was pleased to be in business with STMicroelectronics as both companies invest towards speeding up the market.
Stock performance
Cree stock closed the latest trading session on Tuesday at $44.38 after a 6.53% gain from the previous close. This significant surge in the stock price was probably the result of positive investor sentiments after the deal with STMicroelectronics was announced. Cree stock’s current 52-week high is $51.78 while its current 52-week low is $30.78.
STMicroelectronics stock also experienced a significant rise in the value of the stock after the announcement although not by as big a margin. Its current stock price is $13.13 which is 0.31% higher stock price during the previous close.
Analyst opinions and latest quarterly performance
Roughly 20 brokerage firms that observe Cree have given its shares an average “buy” rating. Eight of the analysts gave the stock a “hold” rating while nine analysts gave the company’s stock a “buy” rating. Only one analyst recommended a “sell” rating. Cree’s last quarterly earnings report was announced on October 16 last year. The company revealed that it made $0.22 earnings per share (EPS) during the quarter. It even managed to surpass the $0.12 consensus estimate set by Thompson Reuters.
Cree revenue for the quarter was $408.28 million which was also slightly higher than the $407.32 million analyst revenue estimate. The company also reported a negative return on revenue at 0.10% and a 17.60% negative net margin. Cree’s revenue for the quarter was 13.3% higher than the revenue reported in the same quarter in the previous year. This means that the company had a noteworthy performance improvement year over year. Analysts expect the company’s EPS at $0.33 in 2019.
Meanwhile, Bank of America analysts have set the STMicroelectronics a $17.67 price target based on a report published on Monday. The company’s current consensus price target is $20.87 while the average consensus estimate is a “buy” rating. Seven analysts observing the stock have given a “buy” rating while five analysts have recommended a “hold” rating.