Stifel Resumes Coverage on Cree, Weary on Near-Term Growth

In a morning summary published Wednesday, Stifel analyst Sven Eenmaa resumed coverage of

with a Hold rating and fair value estimate range of $46.00 to $54.00. The analyst remarked that the company is well positioned to benefit from LED technology adoption in general lighting markets. Despite their advantageous position, Eenmaa wrote, the growth captured so far has not translated into the margin expansion that investors had hoped for, as the company continues to invest in building market share and brand versus optimizing near-term profitability. While Cree's stock has pulled back 16.5% since the last earnings report versus S&P 500 up 1.1%, and the margin expectations are being reset, and lofty expectations are being flushed out from the stock, we do not see a catalyst for near-term improvement in margin trajectory that would warrant a premium valuation multiple, given there is significant investment still ahead for the company, as pricing continues to decline, and revenue mix shifts toward lower margin businesses.” Stifel is optimistic that the company will pay dividends due to Cree's approach to investing in branding and the initial setup for LED growth. For near-term investors, the analyst commented that LED bulbs are relatively expensive and branding investments that provide leverage against price step-downs require cost reductions to stimulate demand. Shares of Cree closed at $48.73 and are currently trading at $48.30, down 0.89 percent.