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CREE: Swing and a Miss

|Includes:Cree, Inc. (CREE), RBCN, VECO

CREE came out today after the bell with another disappointing earnings release:

Cree reports Q2 EPS $0.55 ex-items vs Reuters $0.58 (62.90)

  • Reports Q2:
    • Revenues $257.0M vs Reuters $277.0M
  • Q3 guidance:
    • revenues $245-265M vs. Reuters $288.3M
      • cites seasonality and on-going inventory correction in Asia
    • non-GAAP EPS $0.38-0.45 vs. Reuters $0.57; First Call $0.58
    • non-GAAP gross margin +/- 46%
    • tax rate 21%
Overall, another pretty ugly quarter for the leader in LED technology but should you be dumping your CREE on this disaster?
Tough decision for those who are holding CREE into earnings but for those that are not I think the next few months will be a great buying opportunity as CREE consolidates.  There is support between $52 and $48, the level CREE bottomed following last quarters minor debacle, but, considering CREE declined 4% q/q I think the stock could sneak down through $48 and trend down towards $42, so scale in slowly.
CREE is probably dead money for the next quarter but I like buying weakness as I believe in the longer term story in LED’s and weakness in the stock price will bring back takeout chatter which should help support the stock.  Also, once the stock stabilizes all the analysts that take there numbers down over the next few day’s will be looking for any strength to upgrade CREE, very similar to last quarter.
There is also a rumor that there is a bid at $40 for VECO so keep that in mind.