Cree Stock Drops 13% During Mid-Day Trading on Oct. 2; Analysts Blame Guidance Citing Weaker Global LED Demand

Cree’s stock got hammered Thursday on Wall Street after the company announced revenue from its LED Products division is expected to decline 20% year-over-year and 13% sequentially to $174 million in the first quarter of fiscal 2015 due to “weaker global demand than originally targeted.”

In preliminary estimates of financial results for its first fiscal quarter ended Sept. 28, Cree said it expects revenue for the quarter to be approximately $428 million. The report said the expected revenue is below the company’s previously targeted range of $440 million to $465 million due to lower LED Products revenue and that, “Overall gross margin is expected to be below the company’s previously announced targets primarily due to the lower LED Products revenue and higher than targeted LED bulb revenue. LED Products and Lighting Products segment gross margins are expected to be lower sequentially primarily due to the product mix within each segment.”

CNBC Mad Money host Jim Cramer attributed the drop to Wall Street worries over use of the phrase “weaker global demand.” During midday trading on Thursday, Cree’s stock was at 20-month low of $34.50 — a 45% drop year-to-date.

Despite the fact that Cree is acknowledged in the lighting business as a market leader in LED lighting that’s successfully competing with Philips, Osram/Sylvania and GE Lighting, stock analysts appear to have mixed feelings on the future performance of the company’s stock. An Investor’s Business Daily article cited a research note on www.trefis.com in which one analyst said, “Lower gross margin, doubts regarding the company's capability to sustain its growth in the long term and rising competition from bigger players such as General Electric are some of the key factors contributing to the negative sentiment around Cree's stock.”

On the flip side, www.thestreet.com still rates Cree as a “buy,” and said in a post that surfaced at Yahoo Finance, “This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company’s strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.”

Despite its stock market slump, Cree continues to invest heavily in R&D and to bolster its line of LED lighting in key product niches. Earlier this week, the company launched another alternative to fluorescent office lighting, its ZR High Efficacy (HE) LED troffer, a specification-grade troffer designed to reduce energy consumption by 70% when compared to traditional fluorescent troffers. The new product pumps out 150 lumens-per-watt and is said to last 100,00 hours — twice as long as comparable LED troffers.