See the latest posts to the Analyst Blog:
http://www.zacks.com/blog/post_info.html?g=6
Here are highlights from Thursday's Analyst Blog:
CREE Strong in Hot Markets
Cree, Inc. (Nasdaq: CREE | news | PowerRating | PR Charts ) 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 Philips Electronics of the Netherlands (NYSE: PHG | news | PowerRating | PR Charts ) investing a billion dollars in acquiring the technology, and General Electric Company (NYSE: GE | news | PowerRating | PR Charts ) making several smaller bids.
Costs, Growth Balance SurModics
SurModics, Inc. (Nasdaq: SRDX | news | PowerRating | PR Charts ) provides surface modification and drug delivery technologies to medical device and pharmaceutical companies. Acquisition of profitable companies, the I-vation deal with Merck (NYSE: MRK | news | PowerRating | PR Charts ) and growth in other operating segments have enabled the company to reduce its dependence on Cypher stent sales, which formed a major part of the company's revenue till 2007. Going forward, the diversified revenue stream should enable the company to post sustainable growth despite falling Cypher stent sales.
We are impressed with SurModics's efforts to diversify its revenue base. While the recent acquisitions will enable the company to deliver strong top-line growth, the company is utilizing its cash position to enter into development agreements and share repurchase programs.
However, the shift in revenue base has exposed the company to higher operating expenses. Higher operating expenses accompany the shift in the company's revenue base. As such, we maintain our Hold rating on the stock with a target price of $48.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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