Summit Research Says Cree Is 'Nothing To Get Excited Over'

Cree, Inc. CREE is set to open Wednesday on a two-day, 10 percent run higher after reporting Q2 results that beat expectations. In a morning note, Summit Research is downplaying the results, calling them “cosmetic.” In the note, Summit reduced its price target to $25, what would be a 26 percent decline from its $34 premarket price.

Summit notes that Cree’s gross margins of 33.1 percent have declined from the prior year, when margins were at 37.5 percent. Structurally, the analysts note, Cree margins will continue to be depressed as the lower-margin lighting portion of its business are accounting for a greater share of revenue. Finally, Summit says that $0.08 of Cree’s EPS of $0.33 was the result of a federal R&D tax credit.

Cree trades at a forward P/E of 22.6, a valuation that Summit said is unwarranted based on low growth expectations. Instead, the $25 price target is a 16x value, adding in the cash on Cree’s balance sheet.

Shares were up 4.6 percent in the premarket at $33.85.