CREE

[David Randolph]

The following analysis was written on October 10th, 2007:

Hi David don't post here too often but always checking for stocks... Great job on your analysis, if you could can you do an analysis on CREE ? thanks

1. Profile

Cree, Inc. (CREE) develops and manufactures semiconductor materials and devices primarily based on silicon carbide (SiC), gallium nitride (GaN), and related compounds. The company produces light emitting diodes (LEDs), SiC and GaN material products, and high-power products using its SiC and GaN materials. Its LED chip products include blue and green devices made from GaN and related materials grown on SiC substrates. These LEDs are electronic components that are used in various applications, including backlighting for mobile products, automotive interior lighting, electronic displays, gaming equipment, consumer products, and other electronic equipment. Cree's high brightness packaged LEDs comprise high brightness LEDs for lighting applications and surface mount devices; and through-hole LEDs for signage, gaming, and other applications. The company's materials products consist of SiC and GaN wafer and epitaxy products, which are used to manufacture products for optoelectronic, microwave, and power switching applications, as well as bulk SiC materials used for gemstone applications. Its high-power products comprise SiC power devices, which are used in power conditioning and power switching in power supplies and motor control applications; and RF and microwave devices. Further, Cree provides foundry services for wide bandgap monolithic microwave integrated circuits that are used in various wide bandwidth communications applications, high-power radar amplifiers, electronic warfare, and wireless infrastructure. The company markets its LED products to customers who incorporate them into packaged lamps for resale to original equipment manufacturers and in packaged products; and SiC and GaN materials products to corporate, government, and university research laboratories. It sells its products primarily in Japan, Malaysia, Hong Kong, Korea, Taiwan, Europe, China, and the United States. The company was founded in 1987 and is headquartered in Durham, North Carolina.

2. Stock's History



CREE's IPO happened in February 1993 at a split adjusted price of $1.25. With the stock closing at $29.46 yesterday, the average annual return of this investment was 23.5%, which is attractive.

However, of course, at the technology bubble's peak in 2000 the average annual return was a lot higher, let me see just for curiosity, it was 73% Clearly, there was a time to sell this stock ... what Warren Buffet is doing with his PetroChina stake also tells me that when stocks enter the "bubble land" and decouple a lot from the fundamentals, it is better to take the profit. There's a time to buy and sell stocks, only a very limited number of stocks rises steadily for 30 years or more without getting a bubble-like valuation in the process. Coca-cola is one of those rare examples.

Going back to CREE, I see the share count rose 6.34% a year, on average, since 1998, and rose 10.4% so far in 2007. This will matter for the dilution factor in my valuation model.

The current market cap is $2.5 B, so, we're not going to discover anything new here, this is a medium cap stock widely followed by analysts (twelve are providing estimates for it).

As for the revenue trend:



The trend has been ascending over the years, with two declines in 2002 and fiscal 2007 which ended in June 2007. But analysts are expecting a return to growth in fiscal 2008 and 2009. The last five years revenue CAGR was 20.5% and the Price to Sales Ratio (using 2007 number) is 6.34, which seems high, since the company's industry has an average sales multiple of 1.68.

As for EPS, the evolution was:



EPS declined for three years in a row, from $1.18 in 2005, to $0.98 in 2006 and $0.72 in 2007. For 2008 analysts expect a further decline to $0.39 and then a recovery in 2009 to $0.55.

This means that CREE is trading at a 2008 estimated EPS multiple of $29.46/$0.39 = 75.5, which is extremely high. The Semiconductor Equipment & Materials industry trades at 20 times earnings.

3. Conclusion

According to the most widely used valuation metrics CREE seems very overvalued. I would avoid the stock, because even if there are positive fundamental surprises, that's already priced in by the lofty valuation.

[David Randolph]

EPS declined for three years in a row, from $1.18 in 2005, to $0.98 in 2006 and $0.72 in 2007. For 2008 analysts expect a further decline to $0.39 and then a recovery in 2009 to $0.55.

This means that CREE is trading at a 2008 estimated EPS multiple of $29.46/$0.39 = 75.5, which is extremely high. The Semiconductor Equipment & Materials industry trades at 20 times earnings.

3. Conclusion

According to the most widely used valuation metrics CREE seems very overvalued. I would avoid the stock, because even if there are positive fundamental surprises, that's already priced in by the lofty valuation.

Even though the p/e was very high, CREE is down just a bit since my analysis. CREE is not alone in this situation ... in the recent downturn of the general market, it appears to me that high p/e stocks held up better than low p/e stocks.

[setravis]

REVENUE MISS: LED light company Cree (CREE) creamed after reporting a revenue miss last night

Read more: http://www.businessinsider.com/10-unusual-stocks-20-october-2010#revenue-miss-led-light-company-cree-cree-creamed-after-reporting-a-revenue-miss-last-night-8#ixzz12w9t1umb

52wk Range: 40.50 - 83.38
Volume: 15,349,458
Avg Vol (3m): 4,852,350
Market Cap: 5.41B
P/E (ttm): 34.42
EPS (ttm): 1.46
Div & Yield: N/A (N/A)

Technicals
Close Below the 13-day MA
Most Actives
Gap Down
Percentage Loser
Price Loser

Last Price Quote is:
-7.21%below 13-day MA
-10.14%below 50-day MA
RS Rating: 7  

[huxuecan]

SiC materials used for gemstone applications. Its high-power products comprise SiC power devices, which are used in power conditioning and power switching in power supplies and motor control applications; and RF and microwave devices. Further, Cree provides foundry services for wide bandgap.