On Tuesday, Deutsche Bank (ETR:DBKGn) adjusted its price target for Wolfspeed (NYSE:WOLF), a semiconductor manufacturer, reducing it to $17.00 from the previous $25.00 while keeping a Hold rating on the stock. The revision reflects several challenges the company faces, including an equipment incident at its Durham 150mm device facility, which is expected to affect sales in the September quarter (Q1-25).
Additionally, changes with major customers, such as the ePropulsion restructuring at BorgWarner (NYSE:BWA) and a significant overhaul in the Electrified Powertrain Technology division at ZF, have been factored into the new forecasts.
The price adjustment comes as Wolfspeed's shares have experienced considerable pressure due to concerns about the company's financial stability. The concerns stem from a combination of high cash burn rates and a history of execution challenges. These factors have raised questions about the company's ability to fund its expansion plans and achieve scale at its Mohawk Valley facility.
Despite these concerns, Wolfspeed is noted to have a strong liquidity position, with approximately $2 billion in cash and short-term investments. The company is also believed to have access to additional funds, including a $750 million accordion from Apollo and $500 million remaining on a commitment from Renesas. This financial backing is expected to help Wolfspeed avoid immediate liquidity problems.
The analyst from Deutsche Bank also suggested that Wolfspeed's board might consider strategic alternatives to maximize shareholder value. This consideration is due to the potential interest from acquirers who may value the company's substantial substrate capabilities, intellectual property, and its extensive pipeline of power device designs.
The analyst's comments reflect the current challenges and opportunities for Wolfspeed without speculating on the company's future performance or industry-wide implications.
In other recent news, Wolfspeed has been the subject of several significant developments. The company has been under scrutiny by William Blair, who maintains a Market Perform rating due to concerns about future guidance and potential yield losses at the Durham facility.
JPMorgan (NYSE:JPM) has also adjusted its outlook on Wolfspeed, reducing the company's price target to $25 while maintaining a Neutral rating, due to concerns over the company's balance sheet and the demand for electric vehicles.
TD Cowen, despite an equipment incident at Wolfspeed's Durham facility, has retained a hold rating on the company, acknowledging its significant achievements like the Mohawk Valley facility achieving a 20% utilization rate. Canaccord Genuity, while expressing concerns over electric vehicle demand and industry liquidity issues, maintains a Buy rating but has lowered its price target.
In the midst of these analyst evaluations, Wolfspeed has delayed the construction of its $3 billion chip plant in Germany, opting instead to increase production at its New York site.
The company has also been targeted by activist investors launching a record number of campaigns in the first half of 2024. These developments are part of the recent news surrounding Wolfspeed and its position in the semiconductor market.
InvestingPro Insights
As Wolfspeed (NYSE:WOLF) navigates through its current challenges, investors and analysts are closely monitoring the company's financial health and market performance. According to real-time data from InvestingPro, Wolfspeed's market capitalization stands at approximately $1.65 billion, reflecting the market's current valuation of the company. Despite a revenue growth of 24.01% in the last twelve months as of Q3 2024, the company's gross profit margin is relatively low at 17.51%, underscoring some of the operational challenges highlighted by Deutsche Bank.
InvestingPro Tips suggest that Wolfspeed operates with a significant debt burden and is quickly burning through cash, which are key considerations for investors. Analysts have revised their earnings downwards for the upcoming period, and they do not anticipate the company will be profitable this year. Additionally, the stock price has been quite volatile, with a 39.72% decline over the last month and a 70.35% fall over the last year as of the date provided, indicating the level of market concerns around the stock.
However, it's worth noting that liquid assets exceed short-term obligations, providing some financial cushion for Wolfspeed. The company's next earnings date is set for August 21, 2024, which will be a critical moment for investors to assess the company's progress on addressing its challenges. For those looking to delve deeper into Wolfspeed's financials and future outlook, InvestingPro offers additional insights and tips, with a total of 15 listed for Wolfspeed, providing a more comprehensive analysis for informed investment decisions.
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