CREE Strong in Hot Markets
Cree, Inc. (CREE) is one of the leading producers of light emitting diode (LED) based on Silicon Carbide (SiC) and Gallium Nitride (GaN). March quarter revenue was in-line with consensus expectations although bottom-lines exceeded. Forward guidance is for a 3%-6% growth in the June quarter.
The global movement to energy-efficient lighting is prompting lighting companies and consumers to look at other options. Therefore, lighting will be the strongest end-market for Cree, likely followed by notebooks. New product ramp-up costs will be increasingly offset by yield improvements, higher capacity utilization, larger wafers and offshore production.
The LED market is hot in our opinion, and the LLF acquisition opens up a new opportunity. Consequently, we are reiterating our BUY rating on CREE shares. CREE shares are currently trading at a 53.9x multiple of our 2008 EPS estimate (P/E).
While new product start-up costs remain a drag on margins, the company has the new-age lighting technology that should bring significant revenue growth. Cree has already started seeing some of this growth, and the recent LLF acquisition is expected to enable direct entry into the commercial and residential lighting markets. The market for LED lighting looks good with Royal Philips Electronics of the Netherlands (PHG) 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, but we are also lowering the target price to $35 (71.4x P/E), as the timeline for significant revenue acceleration has been pushed out slightly. 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 at the company.
Run-Up Makes Anadigics a Hold
Anadigics, Inc. (ANAD) recently reported Q1:2008 results, which topped our estimates. Revenues of $74.4 million, up 10% quarter-over-quarter and 50% year-over-year, exceeded our estimate of $69 million. Pro-forma EPS of $0.15 (excluding stock options expense) beat our estimate of $0.10. GAAP EPS was $0.07. GAAP gross margin improved to 35.8% from 32.8% recorded in the year-ago period and 34.7% in the prior quarter.
The company's wireless business (21.1% quarter-over-quarter growth) comprised 69% of its total sales and was the primary driver for Q1 revenue growth. However, broadband revenues were down 5.8% year-over-year to $23.2 million and down 8.5% quarter-over-quarter. WLAN/WiMAX was up 47%, while cable infrastructure results were down sequentially.
Going forward, management expects revenues between $77 million and $79 million in the second quarter of FY2008. Pro-forma EPS is estimated to come around $0.16-$0.17.
