JPMorgan Downgrades Cree On Valuation

Although Cree, Inc. CREE reported its fiscal third-quarter results in-line with expectations and announced mixed guidance for its fiscal fourth quarter, which “leaves the narrative unchanged,” the stock valuation appears rich, according to JPMorgan.

The Cree Analyst: Paul Coster downgraded the rating for Cree from Neutral to Underweight, while keeping its price target unchanged at $108.

The Cree Thesis: The company loss per share widened in the fiscal third quarter, despite a surge in revenues, Coster said in the downgrade note.

This reflects increased investments by the company “ahead of ramping demand for SiC materials and power electronics with the accelerating adoption of EVs in 2023-2024,” he added.

Management’s earnings guidance for the fiscal fourth quarter missed the consensus expectations, despite the revenue guidance coming in stronger than expected, the analyst noted. “Gross margins could remain depressed through CY21, likely the most scrutinized metric for the new few quarters,” he added.

The stalling of gross margin improvement could “weigh on the stock near term given the elevated multiples at which the stock trades,” Coster wrote.

CREE Price Action: Shares of Cree had declined by 11.44% to $99.85 at the time of publication Thursday afternoon.

(Photo: Cree)