On Tuesday, Deutsche Bank revised its price target on shares of Wolfspeed (NYSE: NYSE:WOLF), a semiconductor company, reducing it to $25.00 from the previous $30.00. The firm has decided to maintain a Hold rating on the stock. The adjustment follows Wolfspeed's softer guidance for the June quarter, which is the fourth quarter of their fiscal year, attributed mainly to weakness in the industrial and energy sectors.
The company's projection for non-GAAP gross margin was notably weak, coming in at 12% at the midpoint. This ''disappointing'' outlook is partly due to the significant difference in margins between the automotive battery electric vehicle (BEV) sector and the industrial and energy (I&E) sectors within Wolfspeed's silicon carbide (SiC) power portfolio.
The analyst noted that the automotive sector involves a more complex factory setup, additional inspection steps, and larger dies that result in lower yields.
It was also suggested that Wolfspeed might have entered into some strategic contracts in the automotive sector with aggressive terms for known good die (KGD), which may have been overly optimistic in forecasting cost efficiencies from the transition to 200mm wafers and yield learning.
As a result, until the I&E sector recovers, the product mix during the initial phase of ramping up the company's Mohawk Valley fabrication facility to 20% utilization is expected to be heavily tilted towards automotive products, accounting for over 90% of the output.
This product mix is anticipated to postpone the company's goal of reaching $100 million in quarterly sales by one quarter, now expected in March 2025. On a positive note, the analyst mentioned that the cost of dies produced at the Mohawk facility is now more favorable than those made in Durham, even when considering the $30 million under-utilization charge incurred in the third quarter.
InvestingPro Insights
In light of Deutsche Bank's revised price target for Wolfspeed, examining the company's financial health and market performance can provide a clearer picture of its current standing. According to real-time data from InvestingPro, Wolfspeed has a market capitalization of approximately $3.26 billion, indicating its size within the semiconductor industry. Despite notable revenue growth in the last twelve months as of Q3 2024, with an increase of 24.01%, the company's financial metrics reveal challenges. The negative P/E ratio of -4.03, which further adjusted to -6.63, underscores the company's lack of profitability in recent periods.
InvestingPro Tips highlight that Wolfspeed operates with a substantial debt burden and is quickly burning through cash, which could raise concerns about its financial sustainability. Additionally, analysts have revised their earnings expectations downwards for the upcoming period and anticipate a sales decline in the current year. These factors, combined with weak gross profit margins and high stock price volatility, suggest that investors should proceed with caution.
For those interested in a deeper analysis, there are additional InvestingPro Tips available that could shed more light on Wolfspeed's prospects. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to valuable insights that may influence investment decisions.
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