Cree: Caught in a Flickering Industry

Cree recently announced a patent litigation settlement with Bridgelux that switches the two from foes to friends. The settlement included a one-time royalty fee to Cree, a recurring license fee on future Bridgelux products using Cree patents and an agreement to make Cree Bridgelux's majority LED supplier.

However, there has been a 27% run in Cree shares since mid-December (vs. a 6% move in the Nasdaq over the same period) not to mention current valuation metrics of 41 times calendar 2008 and 39 times calendar 2009 consensus earnings per share, respectively. Cree shares are down from a 52-week high of $35.50 to $16, with net cash per share of $3.25 on the balance sheet.

Earnings estimates by the Street have been lowered to 41 cents for 2009. While this is ahead of the 39 cents the Street expects Cree to deliver for 2008, it is a far cry from the company's recent peak EPS of $1.12 in 2004.

Know What You Own: Other semiconductor manufacturers include Applied Material (AMAT - commentary - Cramer's Take), KLA-Tencor (KLAC - commentary - Cramer's Take), Advantest (ATE - commentary - Cramer's Take), Lam Research (LRCX - commentary - Cramer's Take), Advanced Semiconductor Engineering (ASX - commentary - Cramer's Take) and Varian Semiconductor (VSEA - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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At the time of publication, Versace had no positions in the stocks mentioned, although positions may change at any time.

Chris Versace is a founder and managing partner of Agile Capital Management in the Washington, D.C., area. ACM uses a thematic perspective coupled with an ecosystem lens based on the methodologies that Versace used during his 13 years as an equity analyst at Salomon Brothers, Donaldson, Lufkin & Jenrette and Friedman Billings Ramsey.

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