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Analysts Say Cree Needs More Mid-Market LED Exposure

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Cree (NASDAQ: CREE) fell more than nine percent on a weaker-than-expected sales of light-emitting diode products and a narrowing margin.

Uncertainty over gross margin in upcoming quarters led UBS' Stephen Chin to maintain a Neutral rating on the shares, although he said the margin may stabilize if the company can shift sales to more mid-power LEDS.

The company currently dominates the lower-margin market for high-power diodes and Chin cut his target to $50 from $55.

But Susquehanna's Medhi Hosseini said while the mid-power demand grows at the fastest rate in the industry, "Cree is unable to add any mid-power manufacturing capacity" which lowers the value of its shares.

Hosseini cut his target to $42 from $55 and maintained a Neutral rating.

Likewise Deutsche Bank's Vish Shah cut his target to $47 from $56 and maintained a Hold. Although Shah expects double-digit sales growth "the shares will remain range-bound" until momentum in the high-power segment improves.

D.A. Davidson's Avinash Kant maintained a Buy rating and $70 target and said, "We expect strong top-line growth for Cree over the next five years as adoption of LEDs grows."

With Cree shares falling Wednesday, UBS' Chin noted a similar scenario unfolded following the company's release of March quarter's results and shares pulled back.

Cree, which currently has $200 million remaining in its buyback authorization, jumped in last March with a 2.1 million-share buyback, stabilizing the share price.

Cree traded recently at $45.07, down 8.3 percent.

Latest Ratings for CREE

DateFirmActionFromTo
Oct 2014Bank of AmericaUpgradesUnderperformNeutral
Oct 2014Bank of AmericaMaintainsUnderperform
Oct 2014Canaccord GenuityDowngradesBuyHold

View More Analyst Ratings for CREE
View the Latest Analyst Ratings

Posted-In: Avinash Kant D.A. DavidsonAnalyst Color Earnings News Price Target Intraday Update Analyst Ratings

 

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