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) - Get STMicroelectronics NV Report, Infineon (IFNNY) , and ON (ON) - Get ON Semiconductor Corporation Report, 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) - Get Apple Inc. Report (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) - Get Skyworks Solutions, Inc. Report, Qorvo (QRVO) - Get Qorvo, Inc. Report and Qualcomm (QCOM) - Get Qualcomm Inc Report. …
2. “CRUS is most exposed to customer concentration risk. …
3. “Pricing pressure. …
4. “Lower prospects for cash returns and mergers and acquisitions. …”