Wednesday, August 11, 2010

UPDATED: Cree in Crisis, Market Slices and Dices (CREE)

UPDATE II: "UBS Cuts Cree to Neutral, Our Pal Ramesh at Brigantine Maintains Sell (CREE)"
Original post:
Okay it's not "Headless Body in Topless Bar" but not everyone is cut out to be a New York Post headline writer.
And no, the company isn't really in crisis but the market sure is acting that way. The stock is down $8.79 (12.75%) at $60.17.
From MarketWatch:
Cree shares tumble following results, outlook
Cree Inc. saw its shares tumble more than 12% in early trades Wednesday after the maker of super-computer equipment reported results for its fourth fiscal quarter and issued a revenue forecast for the current period that was below expectations. Cree (CREE 60.19, -8.77, -12.72%) said it expects revenue of $270 million to $280 million for the first quarter, while analysts were looking for $284 million, according to consensus forecasts from Thomson Reuters....
From Wall Street Cheat Sheet:
Earnings Recap Cheat Sheet: CREE is a Momentum Stock Gone Wrong
Earnings: Q4 profits of $0.55 vs. consensus $0.51 and $0.18 in Q4 last year.

Revenue: Up 79% to $264.6 million vs. prior guidance of $255-$265 million.
“Fiscal 2010 was a great year for Cree and the LED lighting revolution,” stated Chuck Swoboda, Cree Chairman and CEO.  ”We made good progress building momentum in our business and delivering on our four key objectives for the fiscal year.  Entering fiscal 2011, we are focused on extending our leadership position while we build the scale, cost structure and channels to win in the market.”

Comment: Seeing shares sell off following a better-than-expected number is about the most dismal sight that a holder of a stock can behold.  If you own shares of Cree Inc. (NASDAQ: CREE), well, you’re feeling it pretty hard right now.  After beating on EPS, hitting the upper-end of guidance, and registering gross margins that widened to 49.5% from 39.6%, shares of CREE are down more than 8% in after-hours trading on top of a near 4% loss during the day.  For a stock that opened up the day at $71, we may well see a test of $60 sometime tomorrow.

The selloff is a result of the mixed guidance the company issued on the call.  CREE projected FQ1 EPS of $0.56-$0.59 on revenue of $270 million-$280 million.  Consensus estimates sought $0.54 and $284 million, respectively....MORE

Jim Cramer (remember him?, he used to be famous) says: 
Cree will shine after selloff
Let me say up front, I like Cree. I don't like it for its backlight business; I like it for the bulb business and the changes in the laws that are going to make Cree a multi-year story.

When I recently profiled it on CNBC's "Mad Money," I said that people will always trade it off its backlight business and that the opportunity will come when someone sells it down off the backlight business. logoIt is too soon, and there isn't enough post-mortem yet to sort out how people are going to handle Cree, other than to duly note that it is down 8 and that it will take the whole cell phone/semiconductor complex down with it today in a follow-up to yesterday’s horrid action.

But I think that this could be another Netflix, another, another Acme Packet and another Akamai--four great companies with four stocks that got too hot and were trashed after the quarter, only to come roaring back when people realized the long-term trends are intact.

CREE ChartThe long-term trends, though, don't reassert themselves overnight. They tend to come to the fore only after a couple of days of severe whipping.

I don't expect Cree to be any different. But remember, this huge selloff after earnings has been the history of Cree, and it comes back because the longer-term conversion to energy-efficient lighting is Cree's real breadbox. And that trend, not the backlight on cell phones, holds the key to the stock's long-term performance.

Random musings:
Still hoping for a big price break in gold to get in some, but as September--the starting-gun month for gold's annual rally--rolls around, it is looking increasingly like the gift selloff isn't going to happen.

Disclosures: At the time of publication, Cramer had no positions in stocks mentioned.