From Tech Trader Daily:
Barclays analyst C.J. Muse this morning picked up coverage of the LED sector, launching Veeco (VECO) with an Overweight rating, while starting Cree (CREE) and Aixtron (AIXG) with Equal Weight ratings.
Muse sees 25% compounded growth over the next five years in the LED sector, “as LED penetration transitions from small consumer devices to large-size [TV] screens, followed by general lighting.” But he adds that he anticipates “continued volatility in investor sentiment,” with a current inventory correction in LED TVs driving limited replenishment orders in Q4. He notes that “still sizable” LED TV premiums are limiting consumer adoption, and that price cuts are likely required to drive consumer adoptions.
He also notes that “aggressive capacity additions in China” will likely add to to an oversupply situation in 2011 and 2012, and that pricing pressure is likely to intensify across the supply chain, “muting the earnings power of LED manufacturers and likely driving somewhat lower valuation multiples relative to historical standards.”
As for the individual stocks:
- Cree: “We like Cree’s quality leadership, but see little upside potential given our 22.5x multiple assumption for 2011, so we initiate with an Equal Weight rating and $52 price target.”
- Aixtron: “with valuation on both CY11 estimates and our normalized estimates appearing somewhat rich, we struggle to see meaningful upside potential and therefore initiate coverage with an Equal Weight rating and $32 price target .”
- Veeco: “We see Veeco’s units holding relatively flat in 2011 supported by share gains by Veeco in China,” he writes. “Layer in cash generation and the sale of its metrology business to become a streamlined pure-play on LED, and we initiate coverage of Veeco with an Overweight rating and $50 price target.”...MORE