The Highly Unusual Case Of Cray & Supercomputing (CRAY, INTC)

Cray Inc. (NASDAQ: CRAY) already looked like a home run on news earlier this week.  The company had announced the sale of certain assets to Intel Corporation (NASDAQ: INTC) and shares went up on the news.  Then came earnings and the stock is up even larger on Friday.  Now investors have to wonder if they should chase the stock or if they should just remain confused.

Intel is paying $140 million in cash to buy some networking assets from Cray, its interconnect technology and some intellectual property.  This will provide support for supercomputers and Cray will move ahead with the development and commercialization of its next-generation supercomputers.  It will also do so with a much stronger balance sheet and without the expense of about 74 workers that will join Intel as a part of the deal.

The news that is really sending shares up is the chasing-factor after Cray beat earnings and raised its 2012 guidance on Thursday night.  Revenue for the last quarter was $112.3 million versus $39.9 million a year earlier and net income was $5.0 million or $0.13 EPS versus a loss the year before.  As of March 31, 2012, cash balances totaled $112.3 million compared to $54.2 million as of December 31, 2011, and that is before the Intel cash infusion.

Cray shares rose almost 21% to $8.51 on the Intel asset deal, but then shares rose to $8.90 the following day.  After earnings we now have another 21% gain to $10.84 and Cray is back up in the double-digit share prices for the first time since May of 2007.

Cray is back and a $385 million market capitalization suddenly does not sound that expensive.  Still, shares have jumped a massive amount this week and this company does not pay a dividend of any sort.

If the stock gets a pullback it may be worth reviewing but for now let’s just say that the move has been impressive and then some.

JON C. OGG