Shares of Cree Inc. fell in trading Thursday after a Deutsche Bank analyst downgraded his rating on the company following a big run-up in the stock.
THE SPARK: Analyst Vishal Shah lowered his rating on the LED product maker's stock to "Hold" from "Buy" and maintained his $33 price target, saying that the stock is trading at an appropriate level. He also believes some investors may not have accounted for some potential revenue risks ahead.
THE BIG PICTURE: Cree, based in Durham, N.C., makes light emitting diode products, lighting products and semiconductor products. In its fiscal first quarter ended in September, the company posted double-digit growth in revenue and net income, and it said its backlog improved from the prior year as well.
THE ANALYSIS: The analyst said that while he continues to see positive momentum in the LED lighting market, he believes Cree's shares are already trading at the proper price. The company's stock is up 43 percent in the year to date, a growth rate that's much faster than the broader market. The stock is also currently trading at the high end of its historical range compared to its peers.
Shah also said that while the company's new products appear to be performing well, there are some challenges ahead tied to a slowdown from Superstorm Sandy and a seasonal drop in its sales.
Additionally, rival companies are not yet a threat, but the analyst expects competition to intensify as other companies merge and consolidate.
SHARE ACTION: Shares fell roughly 6 percent to $31.55 by midday. Its stock remains at the high end of its 52-week trading range of $20.25 to $33.60.