Cree Downgraded At JPMorgan, Says Outperformance 'Puzzling'

• The share price of Cree, Inc. CREE has declined 16.43 percent over the past one year, touching a low of $24.07 on January 11.
• J.P. Morgan’s Paul Coster has downgraded the rating on the company from Overweight to Neutral, with a price target of $20.
• The downgrade was based on valuation, with the share price having appreciated more than 10 percent year to date.

Analyst Paul Coster mentioned that although the company’s long term growth prospects remained intact, “at this price level it is worth reconsidering the various risks and threats this company faces, including head on competition in the high-power space, tangential competition from mid-power, and margin pressure from the consumer product strategy.”

Although the company announced strong F2Q16 results and a solid guidance, Coster said that the stock outperformance was slightly puzzling.

Sales in the LED segment grew during F2Q, with Cree stating that the channel inventory had now reached leaner levels, giving management confidence regarding a back-end loaded 2H.

Lighting products also grew in the strong double digits, and continues to be the company’s growth engine. However, Coster noted that despite the robust results, there did not appear to be a significant inflection point.

Therefore given the surge in the share price it would be “prudent to take profits “prudent to take profits.”