KeyBanc: Wait For A Better Entry Point In Cree After Infineon Deal

Investors looking to buy shares of Cree, Inc. (NASDAQ: CREE) after the lighting company announced a 345-million-euro ($428 million) acquisition of most of Infineon's radio frequency power business should wait for a better entry point, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Daniel Baksht maintains a Sector Weight rating on Cree's stock with no assigned price target.

The Thesis

Cree's acquisition of the RF power business includes GaN-on-SiC and LDMOS packaging and test operations, but does not include products related to Cree's high-growth EV market opportunity, Baksht said in a Tuesday note. (See the analyst's track record here.) 

The acquisition makes "strategic sense" and expands Cree's scale while adding distribution channels in high-growth markets, Baksht said. The acquisition also supports the company's expectations to quadruple revenue from its power and RF segment Wolfspeed.

The price tag on the purchase implies a 3.7x EV/S multiple, which is a slight premium to the comparable group of 3.3x 2018 EV/S and is a "reasonable" cost, the analyst said.

The price tag for the Infineon business leads KeyBanc believe it will be dilutive to Wolfspeed's gross margins, and Cree is paying for a business that for the most part experienced slow-to-negative growth, Baksht said. 

Investors may want to "wait for a better entry point" before buying Cree's stock, which is trading near its 52-week high and now implies a slightly negative risk-reward profile, the analyst said. 

Price Action

Cree shares were up more than 2 percent at $42.62 at the time of publication Wednesday afternoon. 

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