Cree adds to losses following Needham downgrade

"We are concerned that the pricing pressure Cree faces in the LED component business could persist in the next few quarters," says Needham's Edwin Mok, downgrading Cree (CREE -2.6%) to Hold in response to its FQ1 warning. The cut follows a Thursday downgrade from Oppenheimer. Mok argues the LED industry's continued shift to mid-power products (often used for indoor lighting) will take a toll on Cree until its investment/supply deal with mid-power Taiwanese LED chipmaker Lextar begins bearing fruit. "Thank goodness we downgraded!," exclaims Summit Research's Srini Sundararajan about his August ratings cut. He thinks Cree's warning and cautious FQ2 remarks suggest it has lost a client, and is skeptical GE, Samsung, or Philips (often brought up in M&A rumors) will want to buy the company. Canaccord's Jonathan Dorsheimer maintains a Buy, but has cut his target by $23 to $41. He suspects Cree's mid-power issues are compounded by a loss of high-end share, and questions the wisdom of its vertical integration strategy (could be upsetting chip/component buyers). Gabelli's Hendi Susanto remains a believer. "We believe LED lighting is still [well-positioned] to gain market adoption in the long run ... For a vertically integrated market leader in the LED industry, we view CREEs valuation is appealing, 9.0x EV/EBITDA based on our 2016 estimates." Share this with a colleague

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Cree adds to losses following Needham downgrade