Here’s Why Cree’s Stock Could Outperform The S&P 500 Post Covid-19 Crisis

by Trefis Team
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Comparing the trend in Cree (NASDAQ: CREE) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can recover to its pre-crisis levels, and possibly rise further, once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of Cree’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Cree Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between February 19th and April 15th, Cree stock has lost almost 20% of its value (vs. about 19% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

Cree’s Stock Has Fallen Because The Situation On The Ground Has Changed

The decline in Cree’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown is likely to have on total industrial and economic activity. Cree’s power products are primarily used in electric vehicles, and RF products are mainly used in communication equipment and technology. This economic slump could adversely impact the company’s revenues as the Power and Rf segment is likely to take a drastic hit, given that electric vehicle sales are expected to drop, and the launch of 5G has taken a backseat for the moment. We believe Cree’s Q3 results will confirm this reality with a drop in revenues across segments. If signs of coronavirus containment aren’t clear by the time of Q3 results in May, it’s likely Cree’s stock, along with the broader market, is going to see a continued drop when results confirm palpable reality.

But Cree Stock Witnessed Something Similar During The 2008 Downturn

  • We see Cree’s stock declined from levels of around $32 in October 2007 (the pre-crisis peak) to levels of around $20 in March 2009 (as the markets bottomed out)- implying the company’s stock lost as much as 39% from its approximate pre-crisis peak. This marked a slower drop than the broader S&P, which fell by about 51%.
  • However, Cree recovered strongly post the 2008 crisis to about $56 in early 2010 – rising by 187% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period

Will Cree’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Cree stock has fallen by just 20% this time around compared to the 39% decline during the 2008 recession, we can expect it to at least recover to the $48 level before the coronavirus outbreak gained global momentum, and possibly rise further past $50.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Cree’s multinational peers – from Coronavirus and GES to impact on competitor L Brands, and Coronavirus on URBN stock. The complete set of coronavirus impact and timing analyses is available here.

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