On Thursday, Citi adjusted its outlook on Wolfspeed (NYSE:WOLF), reducing the price target for the semiconductor company's shares to $25 from $29, while maintaining a Neutral rating.
The adjustment follows the company's post-market performance on Wednesday, which saw a 5% decline in its stock price. This reaction was attributed to a combination of factors including a margin miss in the March quarter and lower-than-anticipated sales and gross margin forecasts for the June quarter.
Wolfspeed's recent financial guidance indicated June quarter sales expectations of around $200 million and a non-GAAP gross margin of 12%. These figures fell short of prior expectations, largely due to weakness in the industrial and energy sectors, particularly in China. Despite these setbacks, the company's Mohawk Valley Fabrication (MVF) facility is on track to achieve 20% utilization by June 2024 and is projected to generate over $100 million in sales by December 2024.
The analyst from Citi acknowledged the positive developments at the MVF site and noted that a recent letter from Jana Partners, an activist investor, could provide a near-term support level for Wolfspeed's stock. Nevertheless, there are concerns about the long-term pricing risks associated with increasing competition in the materials and device markets.
In response to the current outlook, Citi has revised its fiscal year 2024 and 2025 earnings per share (EPS) estimates for amid lower Durham sales. The new price target of $25 is based on a discounted earnings model, applying a 15 times price-to-earnings (P/E) ratio consistent with the average for companies exposed to silicon carbide (SiC) technologies. The Neutral rating suggests that the firm advises investors to maintain their positions without asserting a strong buy or sell bias.
InvestingPro Insights
Wolfspeed's recent market performance and financial metrics present a mixed picture for investors. With a market capitalization of $3.28 billion, the company's valuation reflects the challenges it faces, including a negative P/E ratio of -4.53, indicating that it is currently unprofitable. The adjusted P/E ratio for the last twelve months as of Q3 2024 stands at an even lower -6.2. Despite these figures, Wolfspeed has shown a notable revenue growth of 18.55% over the last twelve months as of Q3 2024, although this is contrasted by a quarterly revenue decline of -12.24% for Q3 2024.
InvestingPro Tips highlight several concerns, such as Wolfspeed's rapid cash burn and weak gross profit margins of 17.51%. Analysts have revised earnings downward for the upcoming period, and they do not expect the company to be profitable this year. On the positive side, Wolfspeed's liquid assets do exceed its short-term obligations, offering some financial stability. The stock price has been volatile, with a 1-week total return of 4.99%, yet a significant year-to-date drop of -39.99%.
For investors seeking more detailed analysis and additional insights, there are 9 more InvestingPro Tips available for Wolfspeed at InvestingPro. To gain access to these tips and a comprehensive suite of investment tools, consider subscribing to InvestingPro using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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