LEDs: Sterne Sees Tight Supply; Bullish On CREE, AIXG, VECO

Sterne Agee analyst Andrew Huang this morning launched coverage of the LED lighting sector, asserting that the sector is likely to see tight supply through 2011. He picks up Cree (CREE), Aixtron (AIXG), Veeco (VECO) and Seoul Semiconductor, (046890-KRX) all with Buy ratings.

• Cree: Huang writes that Cree is the “technology and market share in LEDs for general lighting,” and adds that the company should be able to grow profits 30%-40% annually over the next five years. The analyst sees the LED market for general lighting growing 90% compounded through 2014. His price target: $112.
• Veeco: He puts a price target of $59 on the company, which makes tools used by LED manufacturers. He thinks the sector won’t be able to meet demand this year or next year, driven by growth in the market for LED television backlighting. “We believe the stock�s multiple reflects expectations that orders will decrease over the next 12 months,” he writes. “In our view, the fear that orders will come to a grinding halt is based upon valuation, which suggests peak fundamentals, and historical order patterns of 4-5 quarters of increasing orders followed by a decline.” But he adds that “TV demand will catch chip suppliers by surprise.”
• Aixtron: His price target is 34 Euros, or about $43; he makes the same argument for the company as he does for Cree, asserting that that the toolmaker will get a boost from strong demand for LCD TV backlighting.
• Seoul Semiconductor: His price on the Korea-listed chipmaker is 61,700 won. “Over the next 12 months, we believe Seoul Semiconductor will ramp its sales of LEDs for TVs, increase its traction in general� lighting, and improve its gross margins as it reduces its dependence on 3rd party suppliers for LED chips,” he writes.

In today’s trading:

• CREE is up $1.43, or 2.2%, to $67.50.
• VECO is up 92 cents, or 2.5%, to $38.51.
• AIXG is up 65 cents, or 2.3%, to $28.54.
• Seoul Semi is up 1,200 won, or 2.9%, to 42,350 won, in trading in Korea.
  
• 28.54 +0.65 (2.33%)
• 38.51 +0.92 (2.45%)