Glowing Brightly: Cree (CREE)

While LED lighting is Cree’s most high-profile product, almost 60% of the company’s sales remain in LED components, chips, and materials, not lighting products. That includes the LEDs that backlight most flat-panel televisions, a market that drove Cree’s growth for years but has now flattened out. But the LED lighting market has tremendous growth ahead, as incandescent bulbs are quickly being phased out and the price gap between LEDs and CFLs is shrinking. Cree’s lighting revenues jumped 48% in the past fiscal year, while its other LED products revenues increased just 6%.

Cree will continue to be challenged to keep its margins healthy as the LED market explodes. Innovation and a sharp focus on costs will be required to keep the company in its leadership position, so the stock does carry some substantial risk. That is offset by the company’s sparkling balance sheet, which features exactly zero long-term debt.

Sustainability Profile

The potential sustainability impact of Cree’s key product lines could be profound. The U.S. Department of Energy estimates that LEDs will account for 36% of the general lighting market by 2020 and 74% by 2030. If the market hits those targets, the energy savings would be an astounding 300 terawatt hours, about equal to the annual output of 50 one-gigawatt power plants (as a point of reference, there are about 125 one-gigawatt or larger coal-fired power plants in the U.S. today). When these figures are extended to the entire globe, the potential energy savings and climate impacts are even more staggering.

Revenues:               $1.4 Billion
2014E                     $1.75
2013A                     $1.32
2012A                     $0.95

Projected Annual Growth Rate: 16%
Dividend: Nil
52-Week High–Low: $76.00–$24.50
Risk: Moderate