Mizuho Securities adjusted its outlook on Wolfspeed (NYSE: NYSE:WOLF), a semiconductor company, by reducing its price target to $17 from the previous $28, while retaining a Neutral stance on the stock.
The firm's analysis followed Wolfspeed's financial results for the June quarter, which aligned with expectations, and the company's guidance for the September quarter, which projected flat sequential growth. This outlook is notably below the consensus estimate of a 7% quarter-over-quarter increase.
The report highlighted several challenges faced by Wolfspeed, including weakened demand in the industrial sector and a significant decline in gross margins, which fell short of consensus expectations by 900 basis points.
Despite some positive developments, such as the anticipated increase in device utilization at the company's Mohawk Valley Fabrication (MVF) facility to around 25% in the September quarter and a shift towards a higher proportion of automotive electric vehicle (EV) products in the mix, concerns remain.
Gross margins have experienced a downward trend of approximately 1500 basis points over the past four quarters, influenced by factors such as underutilization, margin pressures in the industrial segment, competition from China in silicon carbide (SiC) materials, and potential delays from automotive EV original equipment manufacturers (OEMs).
Wolfspeed's stock performance reflects these challenges, having declined approximately 70% year-to-date, in contrast to the Semiconductor ETF (SMH), which has seen an increase of around 50% over the same period. T
he firm pointed out that while there is potential for fab closures or reductions in capital expenditures, it is maintaining its Neutral position due to these uncertainties. However, Mizuho anticipates a more positive outlook in the second half of 2025 and into 2026, driven by the potential for low-cost EV models to stimulate better growth in the industry.
In other recent news, Wolfspeed, Inc. has 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 adjusted earnings per share came in at -$0.89, missing estimates by $0.05. However, 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.
In spite of the market's response, CEO Gregg Lowe highlighted the company's progress, noting a 20% utilization at Mohawk Valley in June and the continued strong revenue growth from this facility. The company is now aiming to reach 25% utilization at its Mohawk Valley Fab in the first quarter of fiscal 2025, ahead of schedule.
Wolfspeed is also expediting the transition of device fabrication to its 200mm Mohawk Valley Fab and considering the closure timeline for its 150mm Durham device fab. Furthermore, the company plans to decrease its net capital expenditure by $200 million in fiscal 2025. For the full fiscal year 2024, Wolfspeed reported a consolidated revenue of approximately $807 million, an increase from $759 million the previous year.
InvestingPro Insights
Following Mizuho Securities' updated stance on Wolfspeed, real-time data and insights from InvestingPro provide a more granular view of the company's financial health and market position. With a market capitalization of approximately $1.7 billion, Wolfspeed's valuation reflects significant challenges, underscored by a negative P/E ratio of -2.1, which worsens to -3.45 when looking at the last twelve months as of Q3 2024. This suggests that investors are wary of the company's profitability in the near term.
InvestingPro Tips highlight that Wolfspeed operates with a significant debt burden and is quickly burning through cash, which aligns with the concerns raised by Mizuho Securities regarding the company's financial results and margin pressures. Moreover, the stock's price has seen a notable decline, falling by nearly 70% over the past year, which is consistent with the negative sentiment surrounding the company's performance and future earnings potential, with four analysts revising their earnings downwards for the upcoming period.
Despite these challenges, InvestingPro Tips indicate that Wolfspeed's liquid assets exceed short-term obligations, providing some cushion against immediate financial strain. Additionally, the company's revenue has grown by 24.01% over the last twelve months as of Q3 2024, which may offer a glimmer of hope for its long-term prospects. For investors seeking a more comprehensive analysis, there are over ten additional InvestingPro Tips available, offering deeper insights into Wolfspeed's financial and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.