On Tuesday, Wolfspeed (NYSE: NYSE:WOLF) received a reiteration of a Neutral rating and a $16.00 price target from Citi. The semiconductor company disclosed its plans to build a new Silicon Carbide (SiC) wafer manufacturing facility in Siler City, North Carolina, and to expand its existing device manufacturing facility in Marcy, New York. These developments are supported by a preliminary memorandum of terms with the U.S. Department of Commerce, which could lead to a $750 million grant from the CHIPS Act.
The company has also secured an additional $750 million in financing, led by an investment group headed by Apollo. Of this funding, $250 million will be accessible within the next 10 business days, with the remainder contingent upon CHIPS Act milestones. Furthermore, Wolfspeed anticipates approximately $1 billion in cash tax refunds under Section 48D in the coming years.
The recent announcements have been positively received as they address previous investor concerns regarding Wolfspeed's liquidity. Adjustments to the company's financial model have been made to account for changes in capital expenditures and the cost of capital. Citi's maintained price target of $16 reflects a consistent 1x price-to-book valuation.
In other recent news, Wolfspeed, a U.S. chipmaker, has announced several significant developments. The company has secured a $750 million grant from the U.S. government for its new silicon carbide wafer manufacturing plant in North Carolina. Furthermore, an additional $750 million of new financing has been committed by a consortium of investment funds, including Apollo Global Management (NYSE:APO), the Baupost Group, Fidelity Management & Research Company, and Capital Group.
Wolfspeed also plans to expand its Marcy, New York silicon carbide device manufacturing facility, aiming to increase production capacity by approximately 30%. This expansion is part of Wolfspeed's $6 billion capacity expansion strategy. Canaccord Genuity has reduced its price target on Wolfspeed's stock due to operational concerns, but maintained a Buy rating.
Roth/MKM, on the other hand, has reiterated a Buy rating on Wolfspeed's shares, expressing optimism about the company's nearing negotiations to provide silicon carbide wafers to key third-party customers. Deutsche Bank has also maintained a Hold rating on the company's shares, despite lowering its price target following Wolfspeed's announcement of a significant decrease in capital expenditures by 2026.
InvestingPro Insights
Wolfspeed's recent strategic moves, including the planned expansion of its manufacturing facilities and securing significant funding, align with its growth trajectory but also highlight some financial challenges. According to InvestingPro data, Wolfspeed's revenue growth has slowed to 6.42% over the last twelve months, with a quarterly revenue decline of 0.99% in Q4 2024. This context underscores the importance of the company's expansion plans to drive future growth.
InvestingPro Tips reveal that Wolfspeed is "quickly burning through cash" and "operates with a significant debt burden," which explains the company's pursuit of additional financing and government grants. The stock's recent performance has been volatile, with a strong 30.5% return over the last month, contrasting sharply with a 65.02% decline over the past year. This volatility is consistent with the InvestingPro Tip noting that the "stock generally trades with high price volatility."
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Wolfspeed, providing deeper insights into the company's financial health and market position.
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