D.A. Davidson Sees 34% Upside in Cree Shares

D.A. Davidson upgraded shares of

from Neutral to Buy and raise the price target from $66 to $70 midday on Thursday. Analyst Avinash Kant sees the strength in Taiwanese LED chipmakers revenues as a positive indicator for Cree. While the Taiwanese companies are more exposed to the blacklighting market, their “significant rebound in March along with strong year-over-year growth trends indicate that broad fundamentals in the LED space are improving once again,” said the analyst. Cree's key market, general lighting, will see strong growth over the next 3-5 years, according to Kant. The analyst also cited a recent report from Digitimes Research that estimated the global LED lighting market will grow 38 percent in calendar year 2014. Kant introduced a calendar year 2015 earnings per share estimate of $2.40 on $2.22 billion in revenue, which is above consensus estimates of $2.10 EPS on $195 billion revenue. The analyst does not expect gross margins to improve, but “a more normal decline in LED pricing and constant cost improvement initiatives should stabilize gross margins.” Kant arrives at the $70 price target “by applying a 25x multiple to new CY15 EPS estimate of $2.40 and adding $9.61 in net cash per share.”