Analysts Duel Over LED Leaders

Industrials

Published: November 12, 2013 10:30 am

The world of LED lighting has been one of significant promise, followed by waves of boom and bust for investors who have chased after the more efficient light bulbs. Veeco Instruments Inc. (NASDAQ: VECO) is one of the top players in this sector, and it was just given a new analyst Sell rating on Tuesday. This may have spelled trouble for it and its peers had it not been for another analyst call. LED rival and industry leader Cree Inc. (NASDAQ: CREE) has seen its stock defended by Lazard Capital, and this stock is up when Veeco shares are diving.

Canaccord Genuity gave a $22 price target along with its Sell rating. Unfortunately, that represents implied price downside of almost 30% against a $30.59 closing price Monday. Veeco shares were down almost 4% at $29.40 in early trading Tuesday.

Lazard showed that Cree’s post-earnings drop of more than 20% represents a good buying opportunity. LED light sales have been stronger in the firm’s channel checks, and the sales from Home Depot reportedly have performed very well. The reiterated Buy rating comes along with a $75 price target. Cree shares were up by almost 1.8% at $58.35 Tuesday, versus a 52-week trading range of $29.38 to $76.00 and a consensus price target from Thomson Reuters of $66.30. Be advised that this $75 price target also compares to a street high target of $80 for the stock.

Investors also may want to note that Lazard’s $75 price target would be about 34 times the consensus earnings per share for fiscal 2015.

Canaccord Genuity’s current rating is in-line with its bearish view that there is limited upside for both MOCVD equipment names. It said:

Now that the company is current we have seen the expected negative effect on Veeco’s margins due to price competition and lack of a bubble-type spending environment which we do not believe will be repeated. We do not envision that pricing will materially recover over the next investment cycle, continuing to weigh on margins.

Canaccord showed that the risks of a slower MOCVD cycle and limited earnings power should push investors downstream for exposure to the LED macro. Canaccord’s $22.00 price target is based on a 12 times multiple to its 2015 earnings per share estimate plus pro-forma cash per share.

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