Cree Inc. (NASDAQ: CREE) is surging on Wednesday after a Stern Agee analyst upgrade. LED investors should know ahead of time that this particular research call is perhaps one of the most strange analyst upgrades that we have seen in 2013. The rating was raised to Buy and the new price target was $72 for Cree. The Stern Agee team was led by Andrew Huang and John Shen and they admitted that their estimate cuts were too aggressive. Here is what makes this so interesting: the firm just downgraded Cree last week.

The analyst team said that it overestimated the potential impact from competitor Philips flexing its muscles at lighting agents. The analyst team then said that it had a math error because it factored in agents and retail only. This completely ignored sales through distribution, national accounts and direct, and its mail catalog sales. It also added, “Importantly, management had already factored agent churn in its June quarter revenue guidance.”

The firm’s original anticipation was that the churn at lighting agents would impact 15% to 20% of sales, assuming that two-thirds of its agents would transition away from Cree. Now the firm estimates that the impact of agent churn will be less than 5% of sales. It said, “While our checks suggest that agents in San Francisco and LA have chosen Philips over Cree, agents in New York and Boston have chosen Cree over Philips.”

Stern Agee now sees earnings at $1.28 EPS versus a prior cut to $1.24 EPS for 2013, while annual sales were adjusted up to $1.38 billion from $1.37 billion. For 2014, the firm raised estimates to $1.85 EPS from $1.64 and raised revenue to $1.65 billion from $1.51 billion. The firm’s previous $59 target was 30-times its 2014 projection of $1.97 EPS and the new target is based upon 30 to 35 times its new 2014 targets.

It is not usual at all for an analyst team to reverse a downgrade of that magnitude. It is even more rare for a team to admit that its methodology and assumption calculations were wrong. Cree shares are up 2.5% at $61.35 but the stock did hit a new 52-week high of $53.51 earlier in the trading day.

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