- Cree (CREE -4.1%) fell amid a downgrade by Bank of America to Underperform from Neutral with an unchanged price target of $93, suggesting 5%-6% upside from current levels.
- The analyst believes Cree's first mover advantage in silicon carbide for next generation electric vehicles will provide long-term benefits, but he remains concerned about gross margins, capex and competition.
- Cree CEO Gregg Lowe had commented on the company's earnings call that demand for silicon carbide was rapidly expanding he noted that; "It's now higher than what they originally thought and faster than they originally thought across multiple different end equipments and certainly automotive being a pretty key part of that."
- Speaking on CapEx, CFO Neill Reynolds believed fiscal 2021 required a significant investment in CapEx, net amount of $566M, and expect it to represent the most significant period of investment between now and 2024 as the company executes its capacity expansion plan including the launch of its Mohawk Valley Fab at 200 millimeter in 1H 2022.
- The analyst expects gross margin pressure as Cree is impacted by the higher cost of old fabs as new fabs ramp.
Wall Street Analysts Rating for Cree - However, Reynolds had noted that gross margin impact was short term in nature due to the sub optimal device production footprint it has in North Carolina and which is expected to improve in future as the company eventually shift production to the new Mohawk Valley fab.
