11 August 2009

Why I like CREE to meet or exceed earnings: bright future for LEDs

I had a funny little exchange with a StockTwits friend about Cree (NASDAQ: CREE) a week or so ago. He and I both like the stock, but for different reasons:

I like that Cree is the market-leading innovator in energy-efficient, environmentally friendly LED lighting and innovations. They also develop semiconductor solutions for wireless and power applications.

I like the fact that they recently announced the first water-proof, 3-color LED for large displays. This will revolutionize outdoor ads, JumboTrons, and maybe even Times Square.

I also like their area and street lighting applications for which I see all sorts of uses with municipalities, campuses, and the like.

My friend "likes the price strength."

We don't disagree. I like the price strength too, and the moving averages have been trending higher for some time. But its the longer-term product strength, innovation, and product adoption that will make Cree a leader for some time to come.

Others seem to like Cree too: Merriman Curhan Ford recently upgraded Cree from Neutral to Buy, saying "the LED outlook is getting brighter."

Merriman Curhan commented that the company "recently raised its June quarter outlook and we believe the company could meet or exceed the high end of its recently revised guidance. LEDs are rapidly replacing CCFLs in TV backlighting and quickly gaining acceptance in the general lighting market that is benefiting Cree in both the near and long term."

They also think "Cree could exceed $1 billion revenue withing 2-3 years and thinks CREE should trade at 35-38x our FY11 EPS estimate of $1.12 for a $39-$43 price."

According to a report in Reuters, "the change was not enough to move the Zacks Consensus Estimate from its current level of 11 cents per share, it did result in a more bullish most accurate estimate of 14 cents per share."

There are others who think the stock may be overbought and that is something to keep an eye on. And the recent volatility in the stock may give some heartburn.

But, as Zacks pointed out, "projections for fiscal 2010 have gradually been rising, suggesting that guidance could be good. CREE has topped expectations twice and matched forecasts twice during the last 4 quarters."

Cree is reports today (Tuesday, Aug 11), after the close of trading. The stock was up in early trading this morning ahead of the earnings call.

(Disclosure: I hold a long position in CREE. This post is for informational purposes only and is neither intended to be investment advice nor an offer, or the solicitation of any offer, to buy or sell any securities.)