Kaufman Bros. Lowers Price Target on Cree (CREE), Ruud Lighting Acquisition Looks Expensive
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Price: $79.12 --0%
Rating Summary:
9 Buy, 22 Hold, 8 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 14 | New: 9
Rating Summary:
9 Buy, 22 Hold, 8 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 14 | New: 9
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Kaufman Bros. is maintaining its Sell rating on shares of Cree (NASDAQ: CREE) and is lowering its price target by $1 to $23.
The company announced that its acquired Ruud Lighting for $372 million in cash, $211 million in CREE stock, and $85 million to retire debt for a total of $668 million. The firm believes that this is relatively expensive as it represents a price to sales multiple of 3.3x, but notes that if Cree can fully recapture the $143 million in tax savings, the multiple drops down to 2.6x.
This will lower the firms cash position to around $630 million or $5.50/share, well below its previous position of $1 billion or $10/share.
Kaufman Bros. believes that the company's long-term outlook and corporate strategy is solid, but may drive down profitability in the short-term.
An analyst at the firm comments, "we are concerned that this move could alienate some current customers like Acuity Brands (NYSE: AYI) and Cooper Industries (NYSE: CBE) as CREE will now directly compete with them in the LED lighting fixture market. Certainly, there is precedence for this with Philips and Siemens already competing and cooperating with customers, but at the margins, the risk of customer defections is likely higher post the acquisition."
The firm lowered its 2012 EPS estimate from $1.20 to $1.06 and raised its revenue estimate from $1.17 billion to $1.355 billion.
For more ratings news on Cree click here and for the rating history of Cree click here.
Shares of Cree closed at $31.25 yesterday.
The company announced that its acquired Ruud Lighting for $372 million in cash, $211 million in CREE stock, and $85 million to retire debt for a total of $668 million. The firm believes that this is relatively expensive as it represents a price to sales multiple of 3.3x, but notes that if Cree can fully recapture the $143 million in tax savings, the multiple drops down to 2.6x.
This will lower the firms cash position to around $630 million or $5.50/share, well below its previous position of $1 billion or $10/share.
Kaufman Bros. believes that the company's long-term outlook and corporate strategy is solid, but may drive down profitability in the short-term.
An analyst at the firm comments, "we are concerned that this move could alienate some current customers like Acuity Brands (NYSE: AYI) and Cooper Industries (NYSE: CBE) as CREE will now directly compete with them in the LED lighting fixture market. Certainly, there is precedence for this with Philips and Siemens already competing and cooperating with customers, but at the margins, the risk of customer defections is likely higher post the acquisition."
The firm lowered its 2012 EPS estimate from $1.20 to $1.06 and raised its revenue estimate from $1.17 billion to $1.355 billion.
For more ratings news on Cree click here and for the rating history of Cree click here.
Shares of Cree closed at $31.25 yesterday.
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