Cree, Inc. is scheduled to release its Q4 2010 results after the market closes on August 10, 2010. For its fourth quarter of fiscal 2010 ending June 27, 2010, Cree targets revenue in a range of $255 million to $265 million with GAAP net income of $46 million to $49 million, or $0.41 to $0.44 per diluted share. Non-GAAP net income is targeted to increase quarter-over-quarter to a range of $53 million to $56 million, or $0.48 to $0.51 per diluted share, based on an estimated 110.7 million diluted weighted average shares. Targeted non-GAAP earnings exclude expenses related to the amortization of acquired intangibles of $0.02 per diluted share, and stock-based compensation expense of $0.05 per diluted share.
Cree, Inc. is a market-leading innovator and manufacturer of semiconductors that enhance the value of solid-state lighting, power and communications products by significantly increasing their energy performance and efficiency. Key to Cree''s market advantage is its world-class materials expertise in silicon carbide and gallium nitride for chips and packaged devices that can handle more power in a smaller space while producing less heat than other available technologies, materials and products. Cree drives its increased performance technology into multiple applications, including exciting alternatives in brighter and more-tunable light for general illumination, backlighting for more-vivid displays, optimized power management for high-current switch-mode power supplies and variable-speed motors, and more-effective wireless infrastructure for data and voice communications. Cree customers range from innovative lighting-fixtures makers to defense-related federal agencies.
As for the Q3 of 2010, Cree, Inc. announced record revenue of $234.1 million, which represents a 78% increase compared to revenue of $131.1 million reported for the third fiscal quarter last year and a 17% increase compared to the second quarter of fiscal 2010. GAAP net income for the third quarter increased more than tenfold year-over-year to $44.6 million, or $0.41 per diluted share, compared to GAAP net income of $4.0 million, or $0.05 per diluted share, for the third quarter of fiscal 2009. On a non-GAAP basis, net income for the third quarter of fiscal 2010 increased 333% year-over-year to $51.3 million, or $0.47 per diluted share, compared to non-GAAP net income for the third quarter of fiscal 2009 of $11.8 million or $0.13 per diluted share. Cash flow from operations was $72.9 million. Free cash flow (cash flow from operations less capital expenditures) was $6.9 million as we spent $66.0 million on capital expenditures to support our capacity expansion. Cash and investments increased $36.9 million from Q2 of fiscal 2010 to $991.0 million.
Analysts' estimates for Q4 2010 range from a low of $0.46 to a high of $0.54, compared to a consensus estimate of $0.50, with number of estimates being 16 and the co-efficient variance 3.75. Cree is expected to report June quarter upside when it reports earnings on August 10. While strong end market general lighting demand will likely drive revenue upside, we believe its near-peak 48% gross margin levels are unlikely to be sustainable with increasing LED chip supply and higher depreciation cost from its fab tool ramp. Cree, Inc., Durham, N.C., and Royal Philips Electronics, Eindhoven, Netherlands, announced that they've signed a comprehensive, worldwide patent cross-license agreement to further accelerate the growth of the LED lighting market. Stearn Agee analyst Andrew Huang, who recently started coverage on the company's stock called Cree the leader in technology and market share in LEDs for general lighting, and expects the company to grow profits 30 percent to 40 percent annually over the next five years.
The stock closed at $73.73, down 0.41% on August 4, 2010 and most analysts' rate the stock as a relative Overweight with an average price target of $90. With shares trading at approximately 21x the CY2011E EPS of $2.60, excluding $9.10 in current cash per share, CREE is undervalued. Cree's revenue should grow 62% in CY2010 and 27% in CY2011, while its non-GAAP EPS should grow 104% and 30%, respectively, during the same time. Given such high growth rates, a multiple of 35x is deemed on the CY2011 EPS estimate of $2.60, excluding current cash per share, more appropriate for Cree shares.
