Morgan Stanley Changes Rating On CREE to Underweight

Morgan Stanley has downgraded its rating on Cree, Inc. (NASDAQ: CREE) to Underweight from its previous rating of Equal-weight.

In the report, Morgan Stanley cites four reasons for its new rating, including competition and pricing pressure, share losses, negative earnings growth projections for F2012 and unfavorable risk reward.

Says Morgan Stanley, “The stock is down 40% since July 2010, following four successive disappointments in earnings or guidance. At 25x 2011 earnings, valuation is nearly twice the market multiple, but we forecast only 4% EPS growth in 2011 and –5% in 2012. We believe lower ASPs, lower gross margins, and lower market share will offset strong industry volume growth in LED lighting. We are lowering our F2012 estimate by 29% and are 17% below consensus.”

Morgan Stanley has also added a price target of $36 for the stock.

CREE closed yesterday at $45.68.