CREE Worth the Premium
Reiterating his bullish case for Cree, Inc. (CREE), Zacks senior electronic industry analyst Ken Nagy, CFA explains why the future looks bright for the investors who would put their money into the company:
'Cree is one of the leading producers of SiC and GaN-based LEDs. September quarter results beat the consensus on both the top- and bottom-lines. Forward guidance is for a 1-5% growth in the December quarter. Near-term revenue growth is likely to come from the lighting space, and notebooks seem to be next in line.
'However, new product ramp-up costs and low utilization rates are likely to keep the pressure on margins. The LED market is hot in our opinion, and the convenience, energy efficiency and eco-friendliness of LED devices should become more apparent over the next few years. We would not be surprised if the company is the subject of a lucrative takeover.
'CREE shares are currently trading at a 46.3x multiple of our 2008 EPS estimate (P/E). The company is a technological leader in the market in which it operates. The potential for expansion into new-end markets is substantial, and this potential is backed by an experienced R&D team. While ASP declines and new product start-up costs remain a drag on margins, the company has the new-age lighting technology that makes it an attractive acquisition target.
'The market for LED lighting appears hot, with Phillips investing a billion dollars in acquiring the technology, and General Electric Company (GE) making several smaller bids. We are encouraging investors to buy CREE shares, and are reiterating our $35 price target (72.9x P/E).'
Hold Human Genome Shares
An update has just come out today on Human Genome Sciences, Inc. (HGSI), in which senior pharmaceutical industry analyst Grant Zeng, CFA is stating his Hold rating on the company. We excerpted the following details:
'Human Genome Sciences, Inc. is a biopharmaceutical company focused on discovering novel protein and antibody drugs through gene-based research and albumin fusion technology. The company has two candidates in late stage development. Albuferon is in phase III studies for hepatitis C and LymphoStat B is in phase III trials for systemic lupus erythematosus (SLE). Both candidates have potential to become blockbusters, while we see LymphoStat B is a higher risk program.
'Although we believe Albuferon has a high success rate of development due to the existing interferon alpha safety and efficacy profile, we think LymphoStat B for lupus is a high risk program since lupus is a difficult disease to treat.
'With a current market cap of $1.4 billion, we think HGS has a balanced risk/reward profile at this point. Therefore, we initiate our coverage of HGS with a Hold rating. Our six-month price target is $12. We arrive at our price target of $12 by applying biotech industry average P/S ratio of 10 x to our estimated revenue of $425 million in 2012, discounted at 25% for 4 years assuming outstanding shares of 150 million.
'Upside potential may come from the phase III data for Albuferon with superiority over Pegasys which may translate into initial rapid sales ramp. Downside risks may come from any failed phase III trial related to Albuferon and LymphoStat B.'
GMCR Worth Waking Up To
After performing profitably for 20 consecutive quarters the shares of coffee growing company Green Mountain Coffee Roasters, Inc. (GMCR), has been rated a Buy by Zacks senior consumer products analyst Steven Ralston, CFA. The following excerpts explain his position:
'Green Mountain Coffee Roasters is a growth company in the premium coffee and tea industry. Management is implementing a growth strategy based on a multi-channel geographic penetration business model. The company is expanding geographically and by adding new relationships, such as with McDonald's (MCD), and Lowes (LOW).
'GMCR is a growth company in a growth industry. The company has reported 20 consecutive quarters of double-digit sales growth. Over the next few years, management s financial goals are to grow both sales and EPS in the 20% to 25% range. The company is expanding geographically and by expanding the channels of distribution, including the Office Coffee Service (OCS) channel, the Supermarket channel, the Consumer Direct channel, the Convenience Store channel, and the Food Service channel. Geographically, the company's operations were concentrated in New England until 2003, when management began emphasizing a national sales program.
'Through the acquisition of Keurig in 2006, the company has expanded its presence in the premium quality single-cup brew market. Through astute distribution expansion plans, the company enjoys 33% unit market share and 48% dollar market share in the single-cup category of coffeemakers. Having generated 20 consecutive quarters of double-digit sales growth and eight consecutive quarters with growth in excess of 25%, the stock is rated a Buy. Better-than-expected quarterly results along with management's positive outlook for fiscal 2008 bode well for the company.
