LED Lamps Powering This Stock
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The world over, people are looking to save electricity; some due to environmental concerns and some looking to save on their power bills. Incandescent bulbs which consume a lot of electricity, have been in use for many decades now. With the introduction of power saving CFL lamps by Philips (NYSE: PHG), incandescent bulbs gradually started losing their popularity. However CFL lamps were discouraged by environmentalists as they contained mercury, which is a toxic metal. People wishing for good health, had to sadly revert back to incandescent bulbs.
Companies realized the drawbacks of CFL lamps, and introduced LED lighting solutions, which require almost half the power consumed by regular CFL bulbs. Additionally, LED lamps are eco-friendly and RoHS compliant. LED lamps last around 6-8 times longer than CFL lamps and are manufactured on a commercial basis by Philips, Cree (NASDAQ: CREE) and Universal Display (NASDAQ: OLED).
Philips recently launched DimTone BR30 LED capable of color temperature dimming, which consumes only 22 watts of electricity while producing the same amount of light as a 100 watt incandescent bulb. Cree also launched "Insignia," which is its range of dimmable LED lamps. To save power on portable display devices, Universal Display launched its organic LEDs, which provides vibrant colors while being power efficient at the same time. Thanks to the success of Organic LEDs, Universal Display is up by nearly 180% over the last three years.
But why Cree?
Gain by China’s Recovery
Cree, which is the leading manufacturer and innovator of lighting LEDs, has been beaten down by the street, owing to the concerns regarding a slowing Chinese economy. China accounts for nearly 30% of Cree’s total sales, with only 15% exposure to Europe. The rising industrial output of China indicates a rebound in the country’s economy. Also since China is still expected to grow at 6%+, Cree can expect a bright future as it holds significant exposure to China’s markets.
A New Growth Driver
Cree recently launched its range of 50V GaN HEMT devices to save on the electricity consumed by cellular networks. According to a report, global cellular networks annually consume more than 10TWh of electricity and with Cree’s technology, an estimated 10TWh of electricity per year can be saved. Besides power saving, the new tech is able to deliver nearly 20% performance gains, in terms of signal amplification, over an operating frequency of 2.6 GHz. In my opinion, mobile service providers would be eager to get their hands on this new equipment, in order to fatten their profit margins or provide competitive pricing.
Some More Positives
Cree is a debt free company, and ended the 1st quarter with $816 million in cash and investments, an increase of $71 million sequentially.
In the previous quarter, the company repurchased 500,000 of its shares. Share buybacks are interesting as they highlight the amount of faith the board members have in the company’s future prospects.
In the recent earnings release, Cree reported revenues of $315.8 million, up 3% compared to the previous quarter which missed the Street’s estimates by a fraction. Net income impressed the investors, as it rose by 60% on a sequential basis. The gross profit margin expanded to 37.5% on the back of lower input costs and higher factory utilization.
The company has no debt, which is a huge positive. The rebounding Chinese economy is expected to be the prime growth driver for Cree’s LED segment. Also the company has only 15% exposure to the stagnating Europe. The new launches coupled with good financial results and share buybacks, make this stock a good investment option.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Universal Display. Motley Fool newsletter services recommend Universal Display . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.