Cree Research (CREE) shares have received a boost from J.P. Morgan analyst Christopher Blansett, who today launched coverage of the LED lighting company with an Overweight rating and $45 price target. The stock closed yesterday at $37.10.
Blansett wrote in a note that Cree will benefit from strong demand trends the LED industry is currently experiencing from both the LCD back-lighting and general lighting applications. He thinks Cree will get a margin lift from the tight supply environment coupled with the companys early adoption of 4-inch wafer production and leading-edge high brightness LED efficiency levels.
The analyst notes that demand is being driven by rapid adopting of LED back-lighting for use in LCD panels, with growth of over 100% likely over the next few years. Although Cree does not focus on this market, he writes, we believe it is indirectly benefiting as the LED industry currently is struggling to keep up with demand. He says the result is higher factory utilization rates and stabilized ASPs.
Longer term, Blansett says, general lighting will drive long-term demand for LEDs, noting that the technology is now more cost-effective that the most efficient conventional lighting. Over time, as LED efficiency continues to improve and the associated ownership costs decline, we expect LED based products to gain significant share in the general lighting market, he writes.
