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    Ahead of the Bell: Cree

    Associated Press – Wed, Jan 18, 2012

    NEW YORK (AP) — Shares of Cree Inc. tumbled 8 percent in premarket trading Wednesday after second-quarter results and an earnings outlook from the high-tech lighting company disappointed Wall Street.

    Industry watchers, while cutting their price targets, have not lost confidence in the company as a leader in the lighting sector.

    "We believe that we are still in the early stages of LED adoption and with the cost curve starting to come in as a result of cost reduction efforts across the industry, that shares of Cree are the best way to play the LED space," said Morgan Keegan's Harsh Kumar.

    Kumar stood by his "Outperform" rating, though he cut his price target by $7 to $36 to reflect the lower-than-expected results and guidance, but backed his for the company.

    The Durham, N.C. company, which makes LED fixtures, bulbs, chips and other products, posted an adjusted profit of $28.7 million, or 25 cents per share, for the recent quarter. Revenue rose 18 percent to $304.1 million from $257 million. The company was just shy of earnings estimates, but was way off on revenue.

    The third quarter will also fall shy of most Wall Street predictions, Cree said.

    Cree expects to earn between 18 and 25 cents per share with revenue between $290 million and $310 million. Analysts polled by FactSet expect a profit of 29 cents per share on $320.4 million in revenue.

    However, Jefferies & Co. analyst Jesse Pichel backed his "Buy" rating for Cree, saying that the company has put a tough year behind it. He predicted that the company will get a boost from a LED subsidy in China, an improving global economy and pent up overall demand.

    Jeffrey Bencik of Kaufman Brothers reiterated his "Hold" rating, saying that demand and pricing will improve after the next quarter.

    "Quite simply, most of Cree's competitors are losing money and therefore will be challenged to cut pricing further," Bencik wrote. "This should help stabilize the pricing environment, which should allow CREE to grow earnings from a likely trough in fiscal third quarter 2012."

    Cree shares dropped $1.83 to $21.50 before the opening bell.

     

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