Earlier this month, leading LED manufacturer Cree (NASDAQ:CREE) further expanded its best-selling LED bulb portfolio with the 3-Way LED Bulb, which emits warm, incandescent-like light while consuming up to 90% less energy. Cree claims that the new product delivers a better lighting experience than incandescent and prior LED alternatives. Selling at The Home Depot (NYSE:HD) for $25, the 3-Way Cree LED bulb is about half the cost of comparable LED bulbs.
There aren’t many 3-way LED bulbs available in the market currently, and thus the introduction underlines Cree’s commitment to drive higher LED adoption via rapid innovation. Cree is one of the leading LED players committed to driving global LED adoption and closing down the price gap with conventional lighting through innovation. Product innovation in the last few quarters has opened new applications and improved LED returns, in turn driving demand for Cree’s products.
Cree hit a milestone in driving LED adoption a year back by launching a LED bulb for as low as $10. The LED bulb is considered as one of the biggest industry innovation in years and is seeing tremendous success at Home Depot stores. The company had recently added a 75-watt LED bulb (consumes 84% less energy and provides similar levels of brightness compared to traditional incandescent bulbs) as well as a 100-watt replacement bulb, which at $19.97 is the lowest-priced 100-watt LED replacement bulb.
Driven by a full lighting season, utility rebate, new products and increased marketing activities, Cree’s LED bulb sales to consumers doubled sequentially in Q2 2014. The company claims that its LED bulb gained additional momentum and brand recognition in Q3 2014. It is reinvesting most of its profits to fund additional marketing investments and generate more awareness for its LED bulb. Rapid product innovation in the last few quarters has opened new applications and improved LED returns, in turn driving demand for Cree’s products.
Cree has a fully integrated vertical business model and is the market leader in both LEDs and LED lighting products. This places the company in a strong position to leverage the global shift to LED lighting. LED lighting accounts for 15%-20% of the global lighting market at present and the LED market share is expected to rise at a rapid pace over the next decade. Cree’s products continue to raise the bar in LED price performance, and the addition of the 3-Way LED bulb is just a point in case.
Our price estimate of $63 for Cree is now at an approximate 25% premium to the current market price. LED penetration is expected to increase in the future and, being one of the leading global LED manufacturers, Cree will benefit from the trend, in our view. With $1.1 billion in cash and no debt, the company has a strong balance sheet, which gives it the ability to invest in growing its business and respond to new market opportunities.
Disclosure: No positions