Strong performance
Cree, Inc. (NASDAQ:CREE) is a multi-billion dollar company with a market cap of over $6 billion. The company has surprised investors beating consensus estimates in the each of the last three quarters. With no debt on their books, and a strong cash position the company is in great shape with tremendous upside potential. The stock has been on fire since the start of 2013, having set new 52-week highs. Year to date, the stock has more than doubled from its $22.25 low. Part of the reason for the company’s success is their new LED lightbulbs.
Greater consumer awareness
Cree, Inc. (NASDAQ:CREE) recently announced an LED lightbulb costing $9.97 for a 40W equivalent and $12.97 for a 60W equivalent. The Cree lightbulbs are available exclusively at The Home Depot, Inc. (NYSE:HD) across 2,000 locations in the US. Both versions are currently on backorder, indicating a strong demand for the product. LED lighting is gaining greater consumer awareness with shelf space at one of the major home improvement retailers. The light bulb has received positive reviews in terms of quality, durability and the product comes with a 10 year warranty.
Home Depot: Strong partner
Cree, Inc. (NASDAQ:CREE) has picked a great partner in terms of The Home Depot, Inc. (NYSE:HD), a company that will continue to see increased foot traffic as the company’s success is correlated to the housing recovery. There is little question that the housing recovery has been on a strong uptrend for the past several years, and will continue. The Home Depot, Inc. (NYSE:HD) has $2.5 billion in cash, and the largest do it yourself home improvement retailer, and an ideal distribution partner for Cree’s revolutionizing products.
Competition: Move over, GE
General Electric Company (NYSE:GE) is a major competitor to Cree, and holds one distinct advantage: their name. Consumers are familiar with the familiar General Electric Company (NYSE:GE) logo, and have been selling light bulbs much longer than Cree has. When it comes to price, Cree wins easily, with products as cheap as $10. A simple search on Home Depot’s website shows that General Electric Company (NYSE:GE) offers a 6 pack of incandescent bulbs for $7.97. Granted, a 6 pick of light bulbs selling for $8 is cheaper than 1 light bulb selling for $10, but is this really the case?
Savings are real for residential users
A 20,000 LED bulb lifespan has a total cost of ownership of $31.97, while CFL light bulbs will cost $35.50, and while the highly inefficient incandescent bulbs will cost $140.80 for the same lifespan.
Businesses can also save money
In addition to residential, the trend towards LED lighting is increasing for commercial, governmental, and other applications. While upfront costs of Cree, Inc. (NASDAQ:CREE)’s bulbs are higher, business users can achieve a lower cost of ownership with payback in less than 1 year.
Conclusion
Cree is at the forefront of the LED bulb market that is up and coming and slowly gaining a higher adoption rate. he company will benefit from a pick-up in general lighting as the cost savings for both residential and businesses are proven. Cree’s products is a step in the right direction for mass LED adoption, especially given the fact that Cree, Inc. (NASDAQ:CREE)’s bulbs are proven to be high quality, affordable, reliable and can break the $10 price point.
The bulbs can bring in anywhere from $10-15 million in revenues from Home Depot alone and a $59 price target based on their 29x forward 2014 CY EPS of $2.05 is reasonable. The stock is currently trading at $54.21 a share, and has a beta of 1.47, making the stock extremely attractive given the fact that the markets continue to climb higher.
The article Cree: Lighting the Future With LEDs originally appeared on Fool.com and is written by Jayson Derrick.
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