Goldman Sachs maintained a Buy rating on Cree (NASDAQ: CREE) with a price target of $72.00. Analyst Brian Lee thinks investors should "buy the dip."
"Despite soft guidance, we remain positive on CREE shares and would be buyers on stock weakness as (1) Cree's strategy to pull forward marketing spend due to accelerated timing on utility rebates – while a drag on EPS growth near-term – should result in accelerating bulb volumes in coming quarters and already appears to be showing up in recent Home Depot restocking; (2) the aggressive push in consumer dovetails with a close to 1bn socket opportunity in 40/60W starting in early 2014, based on our math; and (3) potential for a broader distribution base positions Cree for another pickup in volume growth as its exclusivity with HD sunsets in early 2014," said Lee.
"We expect bears will once again argue EPS growth is stalling on gross margin. However, we note lighting margins – both consumer and commercial – are on the mend, as is revenue growth in commercial (+8% qoq). Plus, we see opportunity for leverage on Cree’s faster spend (+$5.5 mn opex qoq) – the primary impact on near-term earnings – and lower than perceived downside risk to gross margin, which appears flat qoq in Dec, net of one-time licensing revenue that provided a boost to 1QFY14," he added.