Wall Street Analysts Don't Understand Cree

As covered on the EdisonReport, Cree reported their 2nd quarter earnings yesterday.  The income number was not pretty and the stock was quickly downgraded by Ticonderoga from a "Buy" to a "Hold."  Yet, at the writing of this article, the stock is up 5%.


Today, there is a Cree report from Jeffrey Bencik of Kaufman Brothers who 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."  

This analysis s nonsense.  

Your humble editor agrees that most of Cree's competitors are losing money and further agrees they will be challenged to cut prices further.  How does cutting prices in any industry help stabilize the pricing environment?

EdisonReport is pro industry, so want all lighting stocks to rise.  But to state that earnings will rise because of lower pricing makes no sense. It is like saying the passengers of the Costa Concordia cruise ship should be grateful because the captain drove the ship too close to shore and they had a better view of Tuscany.  

Wall Street analysts have a rich history of getting it wrong in lighting. Jeffrey Bencik of Kaufman Brothers continues the tradition.