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Cree: Perfect Time To Buy This Stock at Existing Price

September 03, 2014 | About:



The worldwide LED business sector has seen swift progress because of the interest for efficient displays, lighting, and fixtures alongside the climbing mindfulness levels about power management. The LED business is wide as far as end-client applications and incorporates in various gadgets like LED TV, Notebooks, Smartphones, etc. The real portions in the LED lighting is automobile lighting, general lighting, signs and billboard lighting, with general lighting representing give or take 75% of the aggregate lighting business. The concept of new eco-friendly and also retrofitting the current structures keeping in mind the end goal to make them green is increasing the interest for energy efficient lighting fixtures and, thusly, driving the LED lighting market.

Cree (CREE)is one of the leading players in the LED lighting and fixture market maintaining a rich product portfolio with innovative LED lighting solutions.Lately, the stocks of the company might have suffered, but investors should not panic, and it is certain to rebound. On a YTD basis, stocks are down by 26.18% (as I type), but down by 4.7% on a three-month basis, indicating that it has rebounded and the growth trajectory may continue in future. I have tried to explain the reasons anticipated growth in the rest of the article.

Strong quarter

In the mid of last month, the company released its fourth quarter report for the fiscal 2014. Consolidated revenue was up 16%, to $436 million as compared to revenue of $375 million reported for same quarter last year. On a sequential quarter comparison, it also recorded gain of 8%. GAAP net income was up by 6%, to record $30 million, or $0.24 per diluted share year-over-year compared to GAAP net income of $28 million, or $0.23 per diluted share, same quarter last year.

Gross margin in the quarter was 37.2% as against 37.5% in the same quarter last year. The operating margin was down mainly due to high operational expenditure which was $130,545 as against $109,864 year over year. The company’s innovation continues to grow; this is exemplified by its R&D expense which was higher as compared to same quarter last year. Higher operation expenditure was mainly due to increased R&D expenditure and cost incurred with the sales and marketing.

Enriching product portfolio

Cree has always been innovative and constantly coming up with new products as a persistent measure to acquire wider market share. Just a week ago, it launched MR16 series LED lamps with TrueWhite® Technology. This product is complete replacement for billions of existing Halogen lamps and the company is confident about its success in the LED lighting market. This new product is cost effect with a short payback term (less than a year) can be another feather in the cap for CREE. It is expected to be priced at around $25 and consume 83% less energy to meet the requirement of the ENERGY STAR® certification. This certification helps Cree to provide LED lights with rebates as announced by the U.S government under this certification program.

Cree’s latest innovation is poised to replace the billions of MR16 lamps currently installed around the world by delivering an unprecedented combination of energy savings, color quality and compatibility. The Cree MR16 Series TrueWhite LED lamp is setting a new standard for the category,” said Norbert Hiller, Cree executive vice president, lighting.

Synergies For Future Growth

CREE now plans to have a stake of 13% in Lextar Electronics as against investment of $83 million in Lextar electronics and will acquire around 83 million shares of Lextar Electronics. As a part of this strategic move, Cree and Lextar are into an agreement whereby Cree will make an investment in Lextar and the companies will enter into a supply agreement for sapphire-based LED chips. Sapphire substrates are ideal for use in LED and non-LED applications for various advantages like high temperature resistance, high strength, good electrical insulation and low dielectric loss. Sapphire substrate in LED lighting helps prevent stray currents caused by radiation from spreading to nearby circuit elements. Looking at some of these benefits and ever growing LED market, this synergy will again benefit CREE in longer run with competitive advantages over its rivals.


The company seems to be quite optimistic about its growth, and this is illustrated by its anticipated guidance for the next quarter of the new fiscal 2015. For its first quarter of fiscal, Cree anticipates revenue to be in the range of $440 million to $465 million. GAAP net income is expected to be in the range of $30 million to $37 million, or $0.25 to $0.30 per diluted share.


Currently the stocks of CREE are trading around the lower side of the 52 weeks high-low range. Financially, it has been recording quarterly year over year and sequential quarter growth, and constantly releasing innovative LED lamps to attain wider global footprints.The LED lighting market is anticipated to reach $42 billion by 2019 and I have no reason to quote, why CREE won’t benefit from this fast growing market. The company maintains a strong balance sheet with no debt and cash balance of $1.16 billion. This can be the right time for investors to consider CREE in their portfolios.

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