We reduce our 12-month target price to $60 from $65, on a P/S of 4.9x our FY 21 (Jun.) estimate, above peers to reflect superior growth. We cut our FY 20 EPS view to $0.14 from $0.15 and FY 21 to $1.09 from $1.36. CREE posts Sep-Q loss per share of $0.03 vs. $0.23 EPS, narrower than the $0.05 loss consensus. Sales fell 11%, near expectations, reflecting a 22% decline in LEDs while Wolfspeed revenue was essentially flat. We believe that CREE is being negatively impacted by China softness in power products for industrial and automotive applications, partly due to EV subsidy adjustments. We think some customers are pushing out the roll-out of 5G networks while the Huawei ban is acting as a headwind on margins. We like inventory on hand improving to 98 days from 104 days last quarter but note lower utilization is likely to persist near term, pressuring margins. We positively view CREE's plans to significantly expand its silicon carbide and GaN capacity as it possesses a robust pipeline.
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