Goldman Sachs Comments on Cree's Q3 Miss (CREE)

Goldman Sachs maintained a Buy rating on Cree (NASDAQ: CREE) with a price target of $66.00. Comments follow Q3 results. Analyst Brian Lee noted top line trends were intact, if not gaining, although margins missed.

"We were wrong to expect Cree to guide EPS well above consensus for June, and expect the stock to trade down on gross margin softness. That said, while we underestimated the dilutive impact of mix from a lower-ASP bulb portfolio, we think bears also continue to underappreciate the potential leverage in Cree’s model, which we note has posted six straight quarters of yoy growth in operating margins, with 3Q also up 30-40bp despite a 100bp decline in gross profit," said Lee.

"To that end, we are encouraged by Cree’s ongoing top-line trends, which beat consensus views, as: (1) all segments are growing into June, with lighting sales accelerating to an implied +50% yoy (vs. +35%-40% since last year); and (2) Cree guided to a second straight 20% uptick in FY2014 capex guidance to ease growth-driven capacity constraints – a dynamic that could be a future tailwind, in our view, if the LED cycle inflects more positively (e.g., pricing) from here. Thus, we remain Buy rated and view any weakness as a buying opportunity," he added.

For an analyst ratings summary and ratings history on Cree click here. For more ratings news on Cree click here.

Shares of Cree closed at $58.05 yesterday.

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