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Cree, Cirrus Logic Lower After Bank of America Cuts to Underperform

Cree and Cirrus Logic fell after Bank of America cut its rating on the semiconductor makers to underperform from neutral.
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Cree  (CREE)  and Cirrus Logic  (CRUS)  shares fell, after Bank of America cut its rating on the semiconductor makers to underperform from neutral.

It kept its $93 price target on Cree. The stock recently traded at $85.24, down 3%.

“CREE holds a unique portfolio of silicon carbide and gallium nitride assets supporting high-growth opportunities in electric-vehicle and 5G base stations,” BofA analysts wrote.

“However, we remain concerned about:

“1. Gross-margin pressure as CREE is impacted by higher cost of old [fabrication plants] as new fabs ramp.

“2. A higher [capital-spending] burden, as CREE ramps new fabs, is a headwind to free cash flow.

“3. Rising competition from well established auto/industrial vendors like STMicroelectronics  (STM) , Infineon  (IFNNY) , and ON  (ON) , which have larger research and development budgets.”

As for Cirrus, BofA kept its price target at $92. Cirrus recently traded at $84.60, down 4%. It’s up 6% over the past six months.

On the upside: “We are impressed with management’s ability to innovate organically and drive new content growth opportunity within and outside Apple  (AAPL)  (about 80% of sales), and also flag recent stock buying,” BofA analysts said.

“But we believe the stock upside potential is limited.” The negative factors:

1. “CRUS is trading at 16 times 2022 earnings, above its historical 15.5 times median, and importantly above the multiple of smartphone exposed peers Skyworks  (SWKS) , Qorvo  (QRVO)  and Qualcomm  (QCOM) . …

2. “CRUS is most exposed to customer concentration risk. …

3. “Pricing pressure. …

4. “Lower prospects for cash returns and mergers and acquisitions. …”