On Thursday, Wolfspeed's (NYSE:WOLF) stock experienced a change in its financial outlook. JPMorgan (NYSE:JPM) adjusted the company's price target to $31 from the previous $35, while maintaining a Neutral rating. The revision comes after Wolfspeed's third fiscal quarter results, which ended in March, revealed continued challenges in the Industrial & Energy (I&E) market.
A significant inventory build-up, especially in Asia, has led to expectations of a decrease in Durham-Power Product revenue for the fourth fiscal quarter, projecting $62.5 million compared to $74 million in the third quarter and $96 million in the second quarter.
Wolfspeed's management is taking steps to mitigate these challenges by reallocating capacity from the I&E sector to the Electric Vehicle (EV) market. This strategic shift is anticipated to soften the impact on Durham-Power Product revenue in the fourth quarter, albeit with a temporary effect on profit margins until the I&E market rebounds, which is expected sometime in fiscal year 2025, ending in June.
Despite the current headwinds, Wolfspeed's Mohawk Valley Fabrication (MVF) facility is showing promising growth. The MVF's revenue reached $28 million in the third quarter, aligning with the forecast of $20-$30 million, and is expected to increase to $40-$50 million in the fourth quarter. The MVF is also demonstrating potential for improved profitability, with die costs, inclusive of full underutilization expenses, already lower than those for similar products made at the Durham facility.
Wolfspeed's positioning in the market is further strengthened by the demand for Silicon Carbide (SiC), which exceeds current supply levels. The company highlighted $870 million in design wins during the third quarter, contributing to over $5 billion in year-to-date wins. This momentum is likely to shift investor focus to the MVF's progress and Wolfspeed's growing presence in the EV market.
In light of these developments, JPMorgan has slightly adjusted its forecast for Wolfspeed and moderated the price target for December 2024 to $31. While acknowledging positive indicators, the firm is taking a cautious stance, waiting for more clarity and a longer record of consistent performance from Wolfspeed before changing its investment rating.
InvestingPro Insights
As Wolfspeed (NYSE:WOLF) navigates the shifting dynamics in the Industrial & Energy market with strategic reallocations to the Electric Vehicle sector, it's essential to consider the company's financial health and market performance. Wolfspeed's market capitalization currently stands at approximately $3.28 billion. Despite an 18.55% revenue growth in the last twelve months as of Q3 2024, analysts have expressed concerns, anticipating a sales decline in the current year and revising earnings downwards for the upcoming period. These revisions may be reflective of the challenges faced in the I&E market and the transitionary impacts on profit margins.
InvestingPro Tips reveal that Wolfspeed is quickly burning through cash and suffers from weak gross profit margins, with a gross profit margin of 17.51% in the same period. Moreover, the company's stock price movements have been quite volatile, with a 1-month price total return of -5.91% as of the latest data, underscoring the importance of cautious investment strategies. Notably, Wolfspeed does not pay a dividend, which may be a consideration for income-focused investors.
For those seeking a deeper analysis, InvestingPro offers additional tips on Wolfspeed's financial metrics and future outlook. For instance, Wolfspeed's liquid assets exceed short-term obligations, which could be a sign of financial resilience. However, the company has not been profitable over the last twelve months, and analysts do not anticipate profitability this year. There are 9 more InvestingPro Tips available, providing a comprehensive view of the company's financial status and investment potential. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription for more detailed insights and data-driven investment strategies.
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