Cree Can Light Up Your Portfolio In The Long Term

| About: Cree, Inc. (CREE)


Impressive quarterly performance indicates Cree is on the right track.

Cree’s more efficient and cheaper LED offerings will drive growth.

The new Schottky diodes have further expanded its product portfolio.

Cree is making shrewd moves to capture the outdoor market.

A good buy despite its rich valuations.

Cree (NASDAQ:CREE) is one of the leading lights of the LED lighting industry. This pure play LED lighting company has been reporting strong revenue and earnings growth over the past few quarters, and is even challenging the likes of bigger players such as General Electric (NYSE:GE) in this market.

Cree has been pushing hard on the innovation front and has introduced a number of new products with better efficiency and expects them to drive LED adoption and the company's growth. The company's recent results have also been strong and signify that Cree could be a solid long-term investment.

A brief review of results

Cree's revenue of $415.1 million in the second quarter was up 20% year-over-year, while its non-GAAP net income was $56.8 million, or $0.46 per diluted share, an increase of 54% year-over-year. The results were driven by strong growth in LED fixtures and LED bulbs, and it looks likely that the trend is expected to continue in the future.

Cree's quarterly results reflect the company's improving fundamentals in lighting products. Consumer LED bulb demand is strong, and higher store sales are expected going forward. The typical seasonality trend forecasts LED component demand to be lower due to the Chinese New Year. As a leader in LED lighting, Cree continues to take advantage of the global shift to LED lighting. Its strategy of using new product innovations to drive growth by taking share from traditional technology is a sound one.

Growth strategies

Cree's LED component product line has also grown during the first half of fiscal 2014. It is well-positioned to continue growing into this product line in calendar 2014 as LED adoption continues. Its brand investments have already produced good results, and it plans to continue to invest in this area.

Cree is focused on four priorities to drive growth in fiscal 2014. Firstly, it is looking to continue its innovative moves across its product lines and drive costs down. In lighting, it continues to make great progress in both fixtures and bulbs. Cree's new lighting fixture products are gaining traction in the market, which should help drive sales growth.

The introduction of the LEDway HO series in the second quarter enabled it to deliver more than 50% energy savings as compared to 400 watt HPS Roadway Luminaires. It opened a whole new application to LED lighting with its CXB High-Bay Luminaire. This product eliminates the need for energy wasting, high maintenance fluorescent and HID high bay Luminaire. The product cuts energy costs in half, nearly eliminates maintenance costs, and pays for itself in less than three years with industry leading lumen per dollar performance.

Cree also introduced the 75 watt warm and cool white replacement bulb recently. This played a role in higher LED bulb sales to consumers that doubled sequentially in the second quarter driven by the fall lighting season, utility rebate, new products, and increased marketing activities. Cree is innovating and developing lower-cost next generation bulbs. It continues to work with its retail partners to test the price to consumers and the trade-off between volume and margin.

Cree is also focusing on rebates to deliver higher cost efficiency and generate more awareness in the market. The rebate activity has led to aggressive marketing by Cree. It plans to reinvest incremental bulb profits in marketing to further build the Cree brand.

LED lighting remains a largely untapped opportunity, and Cree continues to make significant investments in new products, new channels, and building the brand.

Recent products and innovations

Also, Cree's extensive R&D initiatives landed it a spot in MIT Technology Review's list of 50 Smartest Companies in 2014, and it doesn't look like Cree is going to stop anytime soon. Recently, Cree launched new high-power silicon-carbide (SiC) Schottky diodes, which were the industry's first commercially available family of 50 Amp SiC rectifiers. Like all Cree products, the CPW5 Z-Rec diodes are designed to reduce costs and improve efficiency. Apart from that, it can be embedded into various power system machines like solar inverters, industrial power supplies, induction heating, battery charging stations, wind turbine converters, and traction inverters.

Recently, Cree also introduced the CXA series of LEDs for high-intensity light applications. These lights are equipped with high density LED arrays that provide strong light without an increase in size of the light source. Lumen density has also been doubled in these LED lights. This product opens up a new market of spotlights for Cree that was not possible with earlier LED technologies.

In addition, the company also added the XSP Series Area and the XSPW Wall Pack LED luminaries to its outdoor lighting array of products. These new products are 65% more efficient and provide nearly maintenance-free lighting for up to 100,000 hours. The company is looking to benefit from the outdoor lighting market which is estimated to grow at a rate of 26% annually from 2010 to 2015.


Cree is seeing rapid growth in the business and is taking a lot of steps to conquer the LED lighting market. The company is continuously innovating, and the gradual phasing out of the traditional light bulb could take it to the next level. Investors looking to invest in a pure play LED lighting company should definitely consider Cree for their portfolios.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.