(By Balachander) Cree Inc. (NASDAQ: CREE) shares were downgraded to "Hold" from "Buy" by Deutsche Bank analyst Vishal Shah who believes risk-reward is now balanced.
"While we continue to see positive momentum in the LED lighting market, we believe shares are already discounting strong growth and margin improvement given the 50% ytd increase vs 11% increase for S&P," the analyst wrote.
With shares are trading near high end of historical valuation range/premium to peers, Shah believes risk-reward is now balanced especially considering limited near term positive demand catalysts over a seasonally weak Mar Q timeframe.
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Shah said checks with Cree's agents/distributors indicate that company is seeing positive momentum from new products. However, the analyst sees limited near term upside due to emerging funding challenges/hurricane related slowdown in Dec Q and seasonality in Mar Q.
Recent checks indicate that the uptake of new products is unlikely to accelerate in the latter part of FY13 (current guidance) and lighting product revenues are likely tracking flat sequentially in the Dec Q versus guidance of solid growth in this segment, Shah wrote.
The analyst, who maintained price target of $33 on the stock, also sees some risk to Mar Q revenue due to seasonality and believes the pick-up in Jun Q lighting business is already priced in.
North Carolina-based Cree is engaged in the manufacture of lighting-class light emitting diode (LED) products, lighting products, and semiconductor products for power and radio-frequency (RF) applications.
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The stock, which has been trading in the 52-week range of $20.25 to $33.60, retreated 5.78 percent to trade at $31.62 on Thursday.