Defending Cree After Earnings Becomes Costly (CREE)

When you see high-growth stocks run into trouble for two quarters in a row, a stock  reclassification for investors is necessary.  That is the case for Cree Inc. (NASDAQ: CREE), and it is not expected to be received well that a high growth stock has to suddenly be deemed as a cheap value stock.  This LED leader was a great growth engine up until summer and some analysts have defended the stock as cheap growth.  The earnings report today and guidance ahead is not going to keep the bulls happy barring anything not released in guidance.

Cree’s earnings were $0.60 EPS versus Thomson Reuters expectations of $0.58 EPS; revenues $268.4 million, shy of the Thomson Reuters data showing estimates of about $278 million. Revenues were up 59% year over year but that came to only 1.5% sequential growth.

For the following quarter, guidance was put at $0.56 to $0.60 EPS on $270 to $280 million in revenues.  Thomson Reuters had estimates of $0.59 EPS and about $296 million in revenues.

The company noted, “Although total revenue was on the low end of our target range of $270-280 million due to a decline in LED chips, LED lighting adoption continues to gain momentum and the growth drivers for the company remain on track.”

LED lighting is probably still a hot market for new companies that get in on it.  That doesn’t mean that some of the established players won’t get burned on the way.

Cree closed down 4.6% at $53.00 in active trading, and shares are indicated down around $49.00 in the after-hours session as a response.  The 52-week range is $40.01 to $83.38.

JON C. OGG