Cree (NASDAQ:CREE) will release its quarterly report on Tuesday, and the LED lighting specialist has already convinced bullish shareholders of its promise, with substantial price gains recently. But to justify that high valuation, Cree earnings need to post even more considerable growth than most analysts expect, putting the onus on the company to demonstrate the groundbreaking potential of its products.

The incandescent light bulb that dominated homes for decades has slowly given way to more innovative lighting products, and the energy savings and functionality of LED lighting has put Cree into the middle of a high-growth industry, as cost-conscious businesses and consumers look for ways to cut their electric bills. But with competition rising in the industry, can Cree keep its earnings growth accelerating? Let's take an early look at what's been happening with Cree over the past quarter, and what we're likely to see in its quarterly report.

Stats on Cree

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$377.21 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How fast can Cree earnings grow?
Analysts have been a bit more optimistic in recent months about the long-term prospects for Cree earnings, holding June-quarter predictions stable, but raising fiscal 2014 estimates by $0.04 per share. The stock has reacted quite favorably, rising 23% since early May.

Cree carried strong momentum coming into the quarter, with its March-quarter results showing the extent to which the company has capitalized on the thriving industry. Revenue jumped 22%, and came in above the company's previous guidance, and Cree gave guidance that was consistent with expectations for the June quarter.

But the big problem that Cree will face with its LED sales is the emergence of competitor Philips Electronics (NYSE:PHG), which has started to ramp up its own LED lighting product offerings. One analyst noted in May that the agents who distribute lighting products to their eventual users prefer the Philips products over Cree's, and as Philips makes its LED offerings more available to customers, Cree could see sales pressure. Moreover, organic-LED maker Universal Display (NASDAQ:OLED) announced very strong results in its second-quarter earnings report, sending shares up 20% in after-hours trading last night as the company gave positive guidance for the rest of the year.

Still, Cree has been focusing on innovative uses of LEDs in many different contexts. It claimed earlier this week to offer the industry's first $99 LED residential-street light for municipal use, with a 65% cut in energy use from outdated sodium lights. Other innovations, like low-glare parking-garage lights, and a new LED flood light for consumer use, show how hard Cree is working to fill out its menu of LED products to boost sales and bolster its credibility in the industry.

In the Cree earnings report, be sure to compare its results against what Universal Display managed to post. As Cree faces threats on two different competitive fronts, it'll be important for the company to differentiate itself and make the most of all the opportunities it has in helping customers replace inefficient lighting. Otherwise, it won't be able to grow fast enough to keep shareholders happy.

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