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By: Todd McDonald, Analyst

Overview

Cree Inc. (CREE) is slated to report 4Q 2013 earnings after the close of trading on Tuesday, August 13. Results are typically available at 4:00 p.m. EST. A conference call will follow at 5:00 p.m. EST. Cree is a light emitting diode (LED) manufacturing company that has garnered extra attention as of late, thanks in part to the improving housing market and an innovative new line of energy-efficient lighting devices.

Outliers & Strategy

  • Non-GAAP Earnings Per Share: Cree reports a value of Non-GAAP earnings per share that is comparable to consensus estimates. The Street is looking for $0.38, with a range of $0.34 and $0.41. (Source: Yahoo! Finance)
  • Revenues: The current Street estimates are for revenues of $377.21 mln, with a range of $367.5 mln to $385.3 mln.
  • Gross Margin: According to Zack's Investment Research, gross margin estimates currently stand at 39.5%.
  • Cree Inc. issued guidance in the 3Q2013 earnings release on April 23. The company indicated that it expects Non-GAAP earnings per share in the range of $0.34 to $0.40, revenues in the range of $365 mln to $368 mln, and gross margins of approximately 39.5%. With the 4th quarter results potentially priced in, the market is likely to focus heavily on next quarters guidance:
  • Adjusted Earnings Per Share Guidance (1Q2014): Analysts are expecting 1Q2014 adjusted earnings per share of $0.43.
  • Revenues Guidance (1Q2014): Street estimates are for 1Q2014 revenues of $398.39 mln.
  • Sympathy Plays: Veeco Instruments (VECO), Acuity Brands (AYI), Revolution Lighting Technologies (RVLT)
  • Implied Volatility: Over the past eight quarters, the average absolute move one day after earnings are released has been 9.56%. Using options premiums, traders are expecting a move of approximately 9%. About 7% of the float is held short, which is down from around 12% heading in to the 4Q2013 release.

Recent News

  • 07/22: Needham & Company maintained its Buy rating on Cree, while increasing its price target to $80 from $63, according to a post on StreetInsider.com. The firm believes that Cree is the best name in the industry, with the greatest exposure to LED lighting. Needham expects Cree to issue higher than expected guidance for the 1Q2014 period.
  • 07/10: According to a post on Benzinga.com, Wedbush Securities raised their price target on Cree, to $78 from $59, while reiterating an Outperform rating. The firm points to rising margins and accelerating revenues as positive catalysts.
  • 07/03: Goldman Sachs raised the firm's price target to $73 from $60, while maintaining its Buy rating, according to a post on Benzinga.com. Channel checks at Home Depot, which is the exclusive distributor of Cree's consumer LED bulbs, have been selling at a faster pace than expected.

Technical Review

Cree shares have more than doubled YTD, rising 115%, while increasing nearly 180% in the last year. The chart has formed a tight up-trend channel, with a false break-down in late June. Longer-term resistance near $73, from late 2010 is currently being broken, suggesting the potential to work towards 2010 highs near $83. If results surprise positively, look for resistance near the $80 level. If earnings disappoint, support levels to watch are near $68 (trend line and 50-day SMA), followed by the $60 area. (Chart courtesy of StockCharts.com)

Summary

Cree has been a major outperformer in 2013, thanks in part to an improving housing market, a more positive economic backdrop, and a strong demand for energy-efficient lighting solutions. Sentiment is high heading into the 4Q2013 report, so the results need to impress the Street to push shares any higher. Focus on guidance for the next quarter to potentially dictate the ensuing trading session.

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Source: Cree Earnings Preview: Q4 2013