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Cree Shares Tank; What Now?

Cree shares plummet after the LED lighting company offers weak guidance for the fiscal first quarter.
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(Cree story updated with analyst commentary and stock price change)DURHAM, N.C. (TheStreet) -- Cree (CREE) - Get Cree, Inc. Report shares were plunging more than 10% in Wednesday's premarket session after the LED lighting company offered fiscal first-quarter revenue guidance that trailed Wall Street expectations.

For the first quarter, Cree targets revenue in the range of $270 million to $280 million, below the consensus expectation of $283.96 million.

The company expects adjusted net income to be in the range of $62 million to $65 million, or 56 cents to 59 cents a share vs. the average analyst target of 54 cents a share, according to Thomson Reuters.

Cree Stock Rating Report (CREE) Rating and Financial Analysis

"So the guidance wasn't entirely negative," Wunderlich Securities analyst Theodore O'Neill wrote in an investor note. "Indeed, we have raised our FY11 estimates because of it. FY12 is slightly lower only because of an increase in share count."

O'Neill's fiscal year 2011 earnings estimate for Cree has been raised to $2.20a share from $2.09 a share previously. His 2012 earnings estimate has been lowered to $2.73 a share from $2.76 a share previously.

O'Neill said that the bear case against Cree has been tested time and time again; while bears believes that Cree's gross margins will collapse given their view that its product is a commodity, "this viewpoint is three or more years old and what's happened in that time is that gross profit margins have only gone up, not down."

The analyst himself has found that Cree keeps beating the lower margins that Wunderlich analysts have modeled. They were 49.5% the quarter alone. "There is a commodity LED market but Cree product isn't part of it."

Cree's mixed guidance came after the close of trading Tuesday alongside the company's fourth-quarter financial results.

UBS analyst Stephen Chin, for his part, is placing his rating and price target for Cree stock under review until he finishes reviewing his financial model for the stock, noting the lower-than-expected sales outlook.

Cree noted that its fiscal fourth-quarter adjusted net income soared 268% year-over-year to $60.1 million, or 55 cents a share as revenue increased 79% to $264.6 million. On average, analysts were expecting earnings of 51 cents on revenue of $264 million.

In late Wednesday morning trading, Cree shares had dropped by $9.20, or 13.3%, to $59.76.

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