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Analyst Blog

The Wolfspeed deal between Cree Inc. (CREE - Free Report) and Infineon Technologies AG (IFNNY - Free Report) recently showed some signs of progress after the companies submitted their CFIUS filing to the Committee on Foreign Investment in the United States. Cree recently informed the Securities and Exchange Commission (SEC) about the progress through an 8K filing.

Previously in mid-July, Cree inked an agreement with Infineon to divest the Wolfspeed Power and RF division (including the related SiC wafer substrate business) for approximately $850 million (almost €740 million).

Based in North Carolina, Wolfspeed has been an operating arm of Cree for over thirty years. It has garnered an unparalleled reputation among clients for providing state-of-the-art SiC-based power and GaN-on-SiC-based RF power solutions. The division had generated pro-forma revenues of $173 million in the twelve months ending Mar 27, 2016.

Although the sale will impact Cree’s near-term profits, the divestiture will help the company to focus on its growing lighting business. In the recently concluded first-quarter fiscal 2017, Lighting Products generated revenues to the tune of $183.8 million, which accounted for 57.2% of total revenue. However, it was down 25.9% on a year-over-year basis.

On the other hand, LED Products generated revenues of $137.5 million, which accounted for 42.8% of total revenue and was up 3% on a year-over-year basis.

Meanwhile, Cree filed back-to-back lawsuits against E. Mishan & Sons (Emson) and MaxBrite alleging design patent and trademark infringement. Although it is difficult to predict the outcome of this kind of lawsuits (most of the time they settle out-of-the court), we believe that Cree’s aggressive stance will aid it to protect its intellectual property (IP) going ahead.

Zacks Rank & Key Picks

Cree has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader sector include NVIDIA (NVDA - Free Report) and Intersil (ISIL - Free Report) . While Intersil has a Zacks Rank #2 (Buy), NVIDIA sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA’s long-term earnings growth rate is currently pegged at 10.3%, while Intersil’s is expected to be 5%.

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