Cree shares fall 9 percent; Red Hat shares get a bump

Posted by David Ranii on January 13, 2014 

Shares of LED lighting company Cree tumbled 9 percent Monday after a Wall Street analyst downgraded his rating on the stock.

Analyst Jeffrey Osborne of Stifel, Nicolaus & Co. wrote in a research note that although he remains upbeat about Durham-based Cree’s prospects for the mid to long term, he was uneasy about the 7.5 percent runup in the company’s stock since the beginning of the year.

“Still like the story for 2014, but near-term set up makes us nervous,” Osborne wrote.

Osborne anticipates that higher marketing expenses associated with the popular Cree LED bulbs sold exclusively at Home Depot and “seasonal weakness” in the sale of outdoor lighting in China stemming from the Chinese New Year could put a crimp on earnings.

Osborne downgraded his rating on Cree from a “buy” to a “hold” as a result.

Cree shares closed Monday at $61.06, down $6.11. The company reached its 52-week high of $75.76 in August.

Cree makes LED light bulbs and indoor and outdoor LED light fixtures, as well as components other companies use in their lighting products. Its LEDs also illuminate car dashboards, mobile phones, televisions and electric signs.

Cree is slated to report its latest quarterly results after the market closes Tuesday, Jan. 21. When the company released its quarterly earnings in October and August, it issued disappointing guidance that depressed its stock price more than 15 percent on each occasion.

“Once again we see a lot baked into the stock heading into earnings,” Osborne observed.

Meanwhile, shares of a second Triangle company – Raleigh-based Red Hat – hit a 52-week high Monday in the wake of the stock’s upgrade by a Morgan Stanley analyst.

Red Hat shares rose 75 cents to close at $57.56. Shares hit a 52-week low of $42.35 in October.

After two years of decelerating growth in billings, a leading indicator of future revenue, billings are set to accelerate in the fiscal year that begins in March thanks in part to newer product offerings, wrote Morgan Stanley analyst Keith Weiss.

“We see meaningful upside ahead,” noted Weiss, who raised his rating to “overweight,” which is the equivalent of a “buy.”

Weiss’s 12-month price target for Red Hat shares is $69.

Red Hat’s Linux software is free, but the company makes money by charging for maintenance and support, and for services such as training and consulting. More than 90 percent of Fortune 500 companies use Red Hat software.

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