BMO Downgrades Cree On Valuation, Says LED Maker Has Unique Positioning

Cree, Inc. CREE is executing on its turnaround, but the risk-reward profile for the stock is balanced, according to BMO Capital Markets, which dropped its bullish stance Sunday. 

The Analyst

Ambrish Srivastava downgraded Cree from Outperform to Market Perform with an unchanged $55 price target. 

The Thesis

Wide bandgap semiconductors are carving out a major presence in power semiconductors thanks to markets such as electric vehicles and 5G, Srivastava said in the Sunday downgrade note. (See his track record here.) 

Cree is also uniquely positioned due to its capability and assets in silicon carbide semiconductors through its Wolfspeed division, the analyst said. 

Cree is executing solidly on its transformation, and it recently announced a capacity expansion to take advantage of the growing SiC market, which is driven primarily by the market for EVs, Srivastava said. 

Yet the stock's risk-reward is "fairly balanced," he said. 

BMO lowered its expectations for the LED business given expectations that it will continue to be challenged by a tough macroeconomic backdrop.

"With respect to exposure to Huawei, we see Cree with some exposure there in infrastructure," the analyst said. 

BMO decreased its estimates slightly to reflect lower revenues that are are partly offset by a higher gross margin and lower operating expenditures. 

The Price Action

Cree shares were trading down by 0.67 percent at $54.77 at the time of publication Monday.

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