Light-emitting diode (LED) company Cree, Inc. (NASDAQ:CREE) did again what it does best — report a solid quarter, beat estimates, and sound out a decent guidance. The company has been on a terrific run over the past few months, and there seems to be no stopping.
As I’d stated in my earnings preview post, Cree is a stock which investors should consider buying irrespective of its quarterly results, as the company is set to benefit from the proliferation of LEDs. If someone had any doubts, then the latest quarterly report would have put them to rest.
Spectacular, once again
Cree, Inc. (NASDAQ:CREE) posted revenue of $349 million in the recently-reported third-quarter, a jump of 23% from the year-ago period. Non-GAAP earnings were $40.8 million, or $0.34 a share, up 75% from $23.3 million, or $0.20 per share posted last year. The company trumped the $342 million revenue estimate, while it matched the Street’s expectation on the bottom line.
In addition, the company’s outlook for the ongoing quarter was no dud either. Cree expects adjusted earnings of $0.34 to $0.40 per share, while revenue is expected to be between $365 million and $385 million. In comparison, the consensus estimate for earnings was at $0.37 per share, in line with the company’s own expectation at the mid-point, and the revenue expectation was $366 million, which Cree upstaged handsomely.
However, despite such handsome results, it looked like the Street wasn’t too happy initially as the company’s bottom-line performance and outlook didn’t turn out to be too “spectacular.” As a result, the stock initially declined after the results were out, but intelligence finally won over avarice and the decline was arrested to some extent.
The bright road ahead
Thus, there were no demons in the report and there is every reason to believe that Cree, Inc. (NASDAQ:CREE)is going to get better going forward. The company is witnessing improvement in LED adoption and this is driving its results. Cree’s LED bulb and commercial indoor fixtures did pretty well in the quarter, and helped the company improve substantially over last year despite seasonality in outdoor fixtures due to colder weather.
Management expects great things from its 40-watt replacement LED light bulb, which it had introduced last month for a price of just $9.97. The company believes that this bulb will help it grow sales in the domestic lighting market, as its various advantages over the traditional light bulb will lead consumers to switch. Cree is targeting those 5 billion traditional bulbs, which are used by consumers in their homes in the United States, and believes that its latest bulbs are just the right product needed to capture that market.
Cree, Inc. (NASDAQ:CREE) is going all out to spread awareness regarding the advantages of its light bulb, and as a result, it will be spending considerably on marketing it in the ongoing quarter. Such investments should ultimately lead to revenue growth for the company.
The company views commercial lighting as one of its primary drivers, and would be releasing more products to address the needs of this segment. Cree is consistently engaged in innovation in an effort to deliver the most efficient product at the lowest cost, and it is doing the same by upgrading its LEDway series to increase performance by 15% while reducing costs by 20%.
Apart from LEDs, Cree is also trying to improve its Power and RF solutions and placing itself in a position to benefit from these technologies in the long run. In addition, Cree, Inc. (NASDAQ:CREE) is focused on moving lower on the cost curve and improve its bottom line as well. The company’s efficient cost leverage is expected to improve its profit as sales volume improves.
Also, it seems analysts are finally recognizing that Cree is set for growth despite trading at a trailing P/E multiple of around 118 times. Analysts expect Cree’s business in China to prosper further, but the company is also intent on expanding its business across Europe and North America, both of which are expected to witness rapid growth in LEDs.
Moreover, it seems that the Street now realizes that Cree’s specialization in LEDs is a big advantage over diversified conglomerates such as General Electric Company (NYSE:GE) and Koninklijke Philips Electronics NV (ADR) (NYSE:PHG). Lazard Capital Markets analyst Daniel Amir said that “Cree is successfully differentiating itself in the market place.”