Canaccord Genuity on Next Generation Lighting: Remains One of the Most Important Demand Side Trends In Alleviating Energy Dilemma

March 2, 2012 12:02 PM EST
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Canaccord Genuity on Next Generation Lighting: Remains ne of the most important demand side trends in alleviating the energy dilemma

Analyst, John Gerdes, said, "We believe that trends in sapphire are improving, evidenced by stabilizing prices and rising utilization rates among most providers. As a result we are becoming more constructive on GT Advanced Technologies (Nasdaq: GTAT)(HOLD). Stabilization in industry economics reduces the risk of order push-outs or cancellations for its sapphire equipment. While we still harbor some of these concerns, we calculate that current valuation is pricing in only half of the company’s $1B sapphire backlog – thus anything above this level should provide upside to expectations."

"While we note that the trends are improving in the sapphire industry and that Rubicon (Nasdaq: RBCN)(HOLD) should benefit, we need clarity around the company’s market position in 2” and 4” before becoming more constructive on the name as we feel the 6” transition will likely take longer to materialize. Simply stated our bearish view on MOCVD installations in 2012 will limit 6” capacity in 2013, meaning the 6” market may be a 2014 story and beyond. As such we will look to our upcoming Asian trip with industry participants to see if Rubicon’s position in 2 and 4” is still as strong as it once was."

"On the LED chip/component front, pricing trends have stabilized to the point where ASP declines should go back to their more historical 20-30% rates, from an annualized 50% over the last 12 to 18 months...With the market on the verge of tightening we would use this year’s downturn to build a position around Cree (Nasdaq: CREE)(BUY), which should see GM leverage return with the uptick in factory utilization as well as volume growth in its lighting systems business. Similarly, we would also opportunistically build a position in Acuity Brands (NYSE: AYI)(BUY) this year in hopes that the general non-residential construction market ticks up in the coming year and as LED lighting and controls become a driver of the company’s results. We feel that this momentum will lead not only to earnings growth but also to multiple expansion."

"While we like Universal Display’s (Nasdaq: PANL)(HOLD) positioning in the emerging OLED market, at current levels we prefer to stay on the sidelines given the risks in the business model, especially post 2018 as the core patents begin to expire. We would prefer a lower entry point that we feel would adequately cover these risks."

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