CREE – Cree Will Continue to Shine for Investors

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Dear Hilary, It seems like CREE is trying to rebound but I’m concerned about buying when it’s been struggling the last few weeks. Has your outlook changed at all? – Christopher

Thanks for your question, Christopher. I’d like to take a minute to address my latest outlook on Cree (CREE) with everyone.

The short answer is no, my outlook has not changed on the stock despite its post-earnings weakness. I still like the long-term catalysts driving CREE and it remains a buy at current prices.

Let me go into more detail. As I’ve talked about, the shares slumped last month in the wake of guidance that was below the Street’s expectations, and have been unfairly punished ever since. Earnings guidance of 36 cents to 41 cents per share compared to estimates of 44 cents per share reflected continued investment in the business through higher sales and marketing expenses as management works to expand its retail presence and increase brand visibility.

Analysts didn’t like the lower numbers, but I feel they are ignoring the larger picture here. I was pleased to see CREE’s investment in its future. There is a sizable market opportunity for CREE, as LED lighting has a tailwind at its back: the mandated phase-out of 100 watt incandescent bulbs, and the likely movement toward banning smaller (40 and 60 watt) bulbs.

The expanding relationship with Home Depot (HD), and thus a strong retail presence, should also help lift CREE in terms of consumer mindshare. I’ve mentioned before that CREE’s bulbs have the Energy Star rating in place, which means that people who buy and install the bulbs will be able to receive rebates from their utilities. This is important because it’s a financial incentive that will lead to increased adoption.

While the Street remains focused on near-term earnings bumps, I do believe that once the marketing efforts pick up increased traction, investors will turn their attention to the longer-term prospects within a multi-billion dollar global industry. I continue to like it at current prices.