While Cree Is Great in LED, Veeco May Be a Better Stock

I have done some comparison work on Veeco Instruments (VECO) and Cree (CREE) (two leading LED plays). While CREE is great, the results suggest VECO has a LOT more upside potential from here.

• CREE has a market cap of $4.6 billion. This is 5x the June 2011 revenue estimate of $910 million. Revenue is expected to grow 22% next year. The June 2011 EPS estimate is $1.43…so the stock is trading at 31x earnings.
• VECO has a market cap of $800 million. This is just 1.5x the revenue estimate for next year (compared to 5x revenues for CREE). Revenues are expected to grow 45% next year (far higher than the 22% for CREE). If VECO were to trade at 5x revenues like CREE…the stock would be $80 per share. VECO EPS are expected to be $1.25 next year, so the PE is 19.6. If VECO were to trade at the same PE as CREE…the stock would trade at $39 (+60% from here).
• Comparing the valuations of CREE and VECO gives me a potential upside target for VECO of $50 next year…maybe more if they continue to beat estimates by such a wide margin.

Disclosure: Long VECO.

Comments

[tc1:]

Hi Jeff-- thank you for the article. Can you tell me more reasons why we should invest in a stock that has a PEG of an awfully high 27.6, when, CREE's is much lower than this, and, for further instance, there are any number of fast-growing Chinese companies with PEGs well under 1.0?

Nov 06 09:28 AM

[Arsuron Pap...:]

Nice comparison. What's your take on AIXG?

Nov 06 08:03 PM

[Chris Lau:]

Good post and find for VECO. I would only assign a multiple similar to CREE for Veco if Veco also had the same competitive positioning as cree, a market lead, and so much demand for its product as cree has that it cannot fulfill it.

Nov 09 08:44 AM

[Jeff Farley:]

VECO PEG is very good...growing 45% and PE is only 20.

AIXG another good LED play.

CREE is the leader for sure...inst will be looking for other better value plays in the LED space imho...VECO revs and eps are ramping big...see their latest earnings report.

Nov 09 01:58 PM

[NR:]

Come on... Is this even a comparison? Do CREE and VECO make same product? At best, VECO is a equipment supplier to CREE.

Nov 15 10:58 PM

[Anagramm:]

Veeco (as AIXTRON) makes the MOVCD-machines one needs to produce LEDs; AIX holds als market share of roughly 70%, VECO 18%; AIX is expensive but they are the clear market leader and deserve a premium. Does it make sense to compare VECO and CREE? I don't think so because CREE develops and produces the LED-Chips -- they're in a quite different business.

Nov 18 09:05 AM

[Eric Virey:]

Agree with the last few comments. While both Cree and Veeco benefit from the strong momentum of the Solid State Lighting, they're not on par on the food chain: Veeco is a supplier to Cree and other LED manufacturers. While the LED market will undeniably experience tremendous growth for the years to come, the success of Veeco will depend on how they succeed against their main competitors, Aixtron, and to a lesser extend Nippon Sanso. Also, one need to keep an eye on Applied Material who's willing to enter the LED equipment market. Remember how they changed the game in the PV industry...
That say, Veeco remains a good company and a valid candidate for investors willing to play the LED market card.

Dec 05 01:44 PM