Piper Jaffray Flips Switch On Cree, Upgrades On Multiple Catalysts

Courtesy of Benzinga.

Piper Jaffray’s Mike J. Ritzenthaler upgraded the rating for Cree, Inc. (NASDAQ: CREE) from Neutral to Overweight, while raising the price target from $27 to $37. He mentioned that their recent lighting distributor checks indicated strong volume growth in the 2016 order books and prompted an upward revision in forward estimates within the Lighting business.

“We believe that the restructuring of the LED products segment has positioned the business to post resilient mid-30% gross margins, while the trough-like Q4 profits for component producers could hasten curtailment of higher-cost capacity in Asia,” analyst Mike Ritzenthaler wrote.

The EPS estimate for FY17 has been raised from $1.23 to $1.35 mainly to reflect slightly better margins within Lighting, while continuing to include ~13 percent y/y growth in the segment.

Commenting on potential upcoming catalysts, Ritzenthaler mentioned that an acquisition within the Lighting business would be a positive, “reallocating cash from repurchases into commercial channel development.”

The analyst believes that the split of Lumileds from Philips and Ledvance from Osram would result in greater transparency and investment discipline among larger industry names. He added, “Potential reduction of Tier 2 component capacity amid historically challenging profits would be a clear positive, but not something that is essential for CREE shares to work in our view.”

Posted-In: Mike J. Ritzenthaler Piper JaffrayAnalyst Color Long Ideas Upgrades Price Target Analyst Ratings Trading Ideas