Most product recalls are minor events. Others can be significant or major. So what are investors supposed to think about Cree Inc. (NASDAQ: CREE) being the company subject to a recall for its Cree LED T8 Lamp? The U.S. Consumer Product Safety Commission (CPSC) website showed a recall notice for Cree on Thursday, June 4.

What stands out about this recall is that it covers a whopping 700,000 of the long lights (lamps) in the United States. An additional 11,500 were sold in Canada.

This is not the first recall for Cree. Its website has a spot for recalls, and the 2014 recall involved its CXB Series LED high-bay indoor light fixtures, with about 10,000 units sold.

24/7 Wall St. wanted to use some straight line math to see what this means financially for Cree and its holders. It appears on the surface that this recall should not be a massive blow to shareholders. That is assuming that this is the end of this matter and that there are no other quality control issues not disclosed.

In the newest recall involving the 700,000 lamps, Cree’s disclosure on the CPSC site said that the company has received four reports of the lamps overheating and melting, but no injuries have been reported. The remedy note said:

Consumers should immediately stop using, disconnect or switch off the fixture, remove the recalled T8 LED lamp, put it in a safe place and contact the firm to receive a full refund or replacement lamp.

Companies often have insurance for product recalls. While the status of Cree is not known in this case, we do have at least some data on what the costs would be. The CPSC site showed that these T8 LED units were sold nationwide at Home Depot and to commercial lighting customers via electrical distributors. The dates these were sold were from August 2014 through April 2015, for about $22 per tube.

ALSO READ: 5 Analyst Stock Picks With 50% to 100% Upside Calls

If we just use straight line math, Cree’s $22 figure for 700,000 units would have a retail cost of $15.4 million, if that is what they all sold for without discounts and bulk prices. We also do not have the expected actual revenue figure that this would mean for Cree, other than that the price the company sells the products for would be less than what they sell for at the retail level.

Cree’s revenue for fiscal June 2014 was about $1.65 billion, and its operating income was $134.2 million. That being said, a portion of $15.4 million would be easy to absorb on the surface. Thomson Reuters shows that the consensus revenue estimate for the fiscal year of June 2015 as being up only 2% to $1.68 billion, with next year’s estimate being up 12% at $1.89 billion.

We will find out more either at the next earnings report or if the company decides that it is a material enough of a cost to replace the bulbs.

As a reminder, many consumers and businesses never find out about recalls. Even then, many who do find out about a recall never do anything about them.

Cree shares were down 1% at $30.34 late in Thursday’s trading session. For what it is worth, the Dow and S&P 500 were also down roughly 1%.

Cree’s 52-week range is $27.25 to $53.33, and the LED light maker’s consensus analyst price target is $32.88. Cree’s market cap is $3.4 billion.

ALSO READ: 10 Stocks to Own for the Next Decade

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.