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Cree falls as 1Q profit outlook misses estimates

NEW YORK (AP) -- Cree's stock slid in midday trading on Wednesday after the energy-efficient lighting maker provided a first-quarter adjusted earnings forecast below analysts' estimates.

THE SPARK: Cree Inc. said late Tuesday that it is expecting first-quarter adjusted earnings of 36 cents to 41 cents per share on revenue between $380 million and $400 million. Analysts polled by FactSet predicted earnings of 43 cents per share on revenue of $399 million.

The company's fourth-quarter revenue of $375 million also fell short of Wall Street's $378 million estimate and its gross margin decreased from the fiscal third quarter.

Cree is best known for LED lights and the products that go along with them.

THE ANALYSIS: Susquehanna Financial Group's Mehdi Hosseini lowered Cree's rating to "Neutral" from "Positive," citing margin pressure. The analyst also said in a client note that the company's new product performance with commercial clients is uneven, which is a concern because it carries higher margins than sells those products at retailers.

But Andrew Huang of Sterne, Agee & Leach said that declining gross margins should not be a huge concern, predicting that it will rebound in the fiscal first quarter partly on lower costs for version 2.0 of the A19 light bulb available at Home Depot and higher margin lighting fixture revenue.

Huang said there's still ample opportunity for Cree to bolster its business, as the majority of lighting users have not yet converted to LED lights.

The analyst maintained a "Buy" rating and $72 price target.

A representative for Cree did not immediately respond to an email seeking comment.

SHARE ACTION: Down $15.50, or 20.5 percent, to $60.26. Over the past year, the stock has traded in a range of $24.50 to $76. With Wednesday's decline, the shares are still up 78 percent for the year to date.