Roth Capital Starts Cree (CREE) at Buy; Positive on Growth Outlook for Lighting Products Unit
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Roth Capital starts Cree (Nasdaq: CREE) with a Buy rating and $34 price target.
Analyst Craig Irwin noted the following with today's initiation:
- The Lighting Products segment is poised for improving traction, in our view. A turn in focus, away from lower margin consumer bulbs, towards architectural and specialty bulbs should drive FY17 margin gains, in our view. Resolution of prior ERP issues and the introduction of 11 new products and platforms in 2016 should support accelerating traction in the back half of the calendar year, consistent with typical three to six month lighting sales cycles.
- The pending sale of Wolfspeed for $850m should free up capital to accelerate Cree's strategic repositioning. The sale is expected to generate $585m in net proceeds, which we expect to be deployed for a series of technology tuck-in acquisitions, and share repurchases.
- We expect Cree to remain an opportunistic buyer of its own stock. The company repurchased 5.8m shares for $150m under the FY16 stock repurchase program, and management has indicated one of the uses of
- proceeds from the Wolfspeed sale could include share repurchases.
- Our model improving profits in the Lighting Products business on traction with recently introduced products and platforms, and a margin gains from the repositioning away from lower margin consumer bulbs.
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