Sneak Peek: Cree Set To Shed Some Light On The LED Market

Earnings Estimates (High/Mean/Low): $0.54 / $0.51 / $0.48

Cree Inc. (NASDAQ: CREE) is set to report F4Q earnings this Tuesday after the bell and investors will be tuning in not only for insights into CREE’s Q, but the increasingly maligned LED market as well.  Consensus estimates are currently pegged at $0.51, a near 300% increase over the $0.18 the company earned in 4Q09.  The conference call is set to follow at 5:00 pm EST.

CREE was one of the hottest names on the Street through ’09 and the beginning of ’10, surging from $12 in December ’08 to highs of $83.38 this past April.  That streak came to a crashing halt in late-April when CREE reported its last Q and got knocked to the canvas.  They reported 3Q earnings of $0.47 vs. consensus $0.44 and, while a beat, it was simply not enough for momentum investors that had gotten used to beats of a far more robust variety.

Such scenes are not uncommon for “cult” stocks, as a Q will inevitably come to pass in which they cannot meet expectations because expectations have been pushed to unrealistic levels.  The test, then, is in how shares perform thereafter, i.e., whether they fall apart completely or stabilize and attempt to march higher.  Thus far, CREE has proven itself a member of the latter camp, dropping from $83.38 all the way to $57.70 over the course of the summer before rallying as high as $76.14 in late July.  Shares closed out last week at $70.62.

A report out of a Taiwan-based newspaper Wednesday night that flat panel makers are cutting orders sent the entire LED space into a tailspin.  While CREE produces more than just LEDs, they are an important part of the story behind shares, and as such, the stock fell by more than 5% following the news.

CREE had been putting together a nice base, and while the pattern it was tracing out does indeed remain intact, given the bad news last week and the relatively volatile nature of shares, it would probably be best to avoid opening new positions ahead of the report.  Wait for the news to come out so you can properly appreciate whether or not the LED market is rolling over and make a fully informed decision.  If you currently own shares, picking up some protection would probably be ideal.

CREE building a base ahead of earnigns.

Disclosure: No holdings in CREE.