On Thursday, Piper Sandler adjusted its outlook on Wolfspeed (NYSE: NYSE:WOLF) shares, a leader in silicon carbide (SiC) device technology. The firm lowered the price target to $18 from $20 but maintained an Overweight rating on the stock. The revision follows Wolfspeed's report of its September quarter results and the provided guidance for the December quarter, which did not meet expectations.
Wolfspeed's forecast for the coming quarter reflects challenges including a slowdown in end demand within the automotive sector, leading to inventory buildups, and a revenue transition from its Durham facility to the Mohawk Valley Fab. These factors have prompted the company to adjust its strategies and expectations.
In response to the current market conditions, Wolfspeed has revised its capital expenditure (capex) guidance for 2025, reducing it by $100 million to a new range of $1.1 billion to $1.3 billion. Additionally, the company plans to reduce its workforce by 20% by the end of the year. This downsizing is expected to achieve approximately $200 million in cost savings.
Despite these adjustments, Wolfspeed's position in the market remains strong. The company is recognized for its leadership in SiC 200mm device technology and holds a dominant position in materials. Piper Sandler reaffirmed its Overweight rating on the stock, expressing confidence in Wolfspeed's ongoing leadership and market presence, despite the near-term challenges reflected in the revised price target.
In other recent news, Wolfspeed has been in the spotlight due to its recent financial performance and forward guidance. The company announced September quarter results that were below its earlier guidance and a December quarter forecast that also fell short of market expectations. In response, Citi revised its outlook on Wolfspeed, reducing the stock's price target to $13 while maintaining a neutral rating.
Wolfspeed, facing challenges in the Industrial & Energy sectors and slower uptake in the electric vehicle market, has initiated several cost-saving measures. These include the divestiture of non-core assets, facility closures, and a reduction of $100 million in capital expenditures for fiscal year 2025.
Despite these challenges, Wolfspeed anticipates reaching operating cash flow breakeven by fiscal year 2026. The company is also slated to receive up to $750 million in funding under the CHIPS and Science Act, aimed at aiding the expansion of its North Carolina-based chip factory and the Mohawk Valley facility.
In addition, the company has projected lower revenue for the second quarter, falling short of analysts' estimate. This is attributed to a slowdown in the electric vehicle market and increased costs due to transitioning from its 150mm chip fabrication plant in Durham to a more advanced 200mm chip plant in Mohawk Valley. These are the recent developments concerning Wolfspeed.
InvestingPro Insights
Recent InvestingPro data provides additional context to Wolfspeed's current situation. The company's market capitalization stands at $1.74 billion, reflecting the market's valuation amid the challenges outlined in the article. Wolfspeed's revenue for the last twelve months as of Q1 2023 was $804.5 million, with a concerning revenue growth decline of -13.49% over the same period.
The company's financial health appears strained, aligning with the article's mention of strategic adjustments. InvestingPro Tips highlight that Wolfspeed is "quickly burning through cash" and "operates with a significant debt burden," which may explain the need for cost-saving measures like workforce reduction. The tip noting that "analysts do not anticipate the company will be profitable this year" corroborates the challenges mentioned in the earnings report and guidance.
Despite these headwinds, Wolfspeed's stock has shown a "strong return over the last month," with a 42.66% price total return. This recent performance might reflect investor optimism about the company's cost-cutting initiatives and long-term potential in the SiC market.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Wolfspeed, providing a deeper understanding of the company's financial position and market dynamics.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.