Cree Inc. (NASDAQ:CREE): Upgraded to Buy at Lazard

Cree Inc. (NASDAQ:CREE) is getting some positive commentary this morning:

- Lazard is upgrading CREE to Buy from Hold with a $90 target saying they believe LED demand for general lighting will grow at a >30% Y/Y CAGR in 2010-14. Firm projects Cree’s rev growth to outpace that of the industry in 2010 and 2011 as the company takes advantage of its early lead in this space. Therefore, they recommend that investors take advantage of the recent pullback in the stock.

No longer just universities and gov’ts. With payback periods coming down as low as 12 months, the firm is seeing increasing adoption of LEDs in general lighting, especially in the commercial space. Lazard's checks suggest that in 2009 there were ~50 commercial projects using LEDs, and in 2010 lighting contracts for LEDs should reach 200+ multimillion-dollar projects. They are also seeing utilities creating rebates for LED fixtures and introducing unmetered rate schedules specifically for LED street and area lighting. Cree is at the center of this trend.

Cree still at the top of vendors’ lists. Three of the top four N. American light fixture vendors are largely using Cree’s 1+ watt LEDs for indoor and outdoor applications. Many other players on the floor mentioned Cree as being among their major suppliers. The company announced a five-year warranty on all of its components and fixtures and is making it easier for fixture makers to innovate with its new modules that integrate driver electronics, optics and primary thermal mgmt plus Cree’s IP and true white

Updating estimates. Lazard is updating their ests. to reflect their expectations for gen. lighting. For F4Q they est. rev/EPS of $269M/$0.52, up from $260M/$0.50 previously. For FY11 they see $1.273B/$2.42, up from $1.230B/$2.35 previously.

- JMP Securities is reiterating their Market Outperform rating and are raising estimates on Cree following positive checks last week for four leading LED driver IC companies and Cree’s announcement of several noteworthy milestones in revolutionizing LED lighting. Each of the four LED driver IC companies the firm spoke to detailed improved LED lighting performance is driving gains in near- and intermediate-term market demand and interest, and several of them gave detailed color around the differentiated position Cree holds in the market. In conjunction with these confidence-inspiring checks, at the Lightfair tradeshow last week Cree announced new milestones in cost/performance and cost/watt in both the residential and commercial solid state lighting markets, and they believe this will translate current market momentum into sustainable intermediate-term gains. As a result, JMP is revising up their June quarter Non-GAAP EPS estimate from $0.48 to $0.52 (Street $0.51) and their FY11 EPS estimate from $2.15 to $2.35 (Street $2.27). JMP's price target of $100 is based on DCF calculations assuming a 9% WACC and 4% terminal growth rate, and represents ~40x their CY11 non-GAAP EPS estimate of $2.48 (up from $2.36 previously).

Notablecalls: I was rather surprised to see CREE move up 5 pts on a Sidoti (?!) upgrade last week. The stock retracted all of these gains in two days and is now back where it started. I think the bulls (if there are any left) may want to have another go around these levels. Not a high conviction call, btw.

Also note the NY TIMES is out with a positive piece on LEDs

LED Bulbs for the Home Near the Marketplace
http://www.nytimes.com/2010/05/17/technology/17bulb.html