Goldman Sachs adjusted its outlook on Wolfspeed shares (NYSE: NYSE:WOLF), reducing the price target to $28 from the previous $48 while still upholding a Buy rating on the company's stock. The semiconductor manufacturer's recent quarterly performance indicated steady progress in its Mohawk Valley project, despite ongoing weakness in its Infrastructure and Electronics (I&E) segment, which has been experiencing sequential revenue declines.
The company has also been actively working towards securing CHIPS Act funding, a detail that emerged as a positive note in the latest quarterly report. In addition, Wolfspeed announced a reduction in its capital expenditure guidance for fiscal years 2025 and 2026, a move that is anticipated to address some of the concerns held by investors.
Wolfspeed has projected another quarter of flat revenue growth, attributing this to the continued decline in the I&E sector.
Goldman Sachs' updated stance reflects the company's current financial trajectory and strategic initiatives, as well as the potential benefits from legislative support and prudent financial management.
Wolfspeed has been the subject of revised financial forecasts by analyst firms Citi and Mizuho Securities due to weakened demand and margin concerns. Citi reduced its price target for Wolfspeed shares from $25.00 to $16.00, while Mizuho Securities adjusted its price target to $17 from the previous $28. Both firms maintained a Neutral rating on the stock.
The company's Mohawk Valley Fab utilization is projected to rise from 20% to 30% by the March quarter. Despite these efforts, analysts from both Citi and Mizuho Securities have expressed concerns over potential long-term challenges such as the slowdown in EV adoption rates and the potential oversupply of silicon carbide in China.
Wolfspeed reported fourth-quarter revenue of $200.7 million, slightly below analyst expectations, but marking a 100% year-over-year increase in electric vehicle revenue. The company's revenue guidance for the first quarter of fiscal 2025, projected between $185 million and $215 million, fell short of the analyst consensus of $211.7 million.
InvestingPro Insights
Recent metrics from InvestingPro underscore the challenges faced by Wolfspeed (NYSE: WOLF) as highlighted by Goldman Sachs. With a market capitalization of $1.7 billion and a troubling P/E ratio of -3.45 as of Q3 2024, the financial health of the company warrants attention. Despite a revenue growth of 24.01% in the last twelve months leading up to Q3 2024, Wolfspeed operates with a significant debt burden and is quickly burning through cash, as indicated by an operating income margin of -35.99%. This is in line with the two InvestingPro Tips that emphasize the company's high debt load and rapid cash depletion.
Moreover, the stock has experienced a sharp 1-month price total return of -37.77%, reflecting the market's reaction to the company's financial position and future outlook. Analysts anticipate a sales decline in the current year, and the stock has fared poorly over the last month. This volatility and negative sentiment are further evidenced by the stock's price being only 27.39% of its 52-week high. Despite these headwinds, Wolfspeed's liquid assets do exceed short-term obligations, signaling some degree of short-term financial stability.
For investors looking to delve deeper into Wolfspeed's financials and future prospects, InvestingPro offers additional insights and tips, with a total of 15 InvestingPro Tips available for the company at https://www.investing.com/pro/WOLF. These tips provide a more nuanced view of the company's performance and potential investment risks or opportunities.
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