Wolfspeed Inc., the renowned maker of silicon-carbide chips, experienced a significant decline in its shares on Thursday. Wall Street analysts scrutinized the company's latest quarter, which showcased challenges in maximizing output from a major fabrication plant.
Wolfspeed (WOLF, -16.68%) shares plummeted by as much as 21% during the day, hitting an intraday low of $42.01. By the end of Thursday's trading session, the stock had fallen by 18%. This marked one of the worst one-day performances since October 27, when the company encountered an 18.2% drop in shares.
The recent announcement of a wider-than-expected loss, coupled with a forecasted loss for the current quarter, led to this downfall. Year to date, Wolfspeed shares have declined by 37%, in stark contrast to the 37% gain achieved by the PHLX Semiconductor Index (SOX) during the same period. Furthermore, the S&P 500 (SPX) witnessed a 15% gain, and the tech-heavy Nasdaq Composite Index (COMP) rose by 28%.
TD Cowen analyst Joshua Buchalter, who maintains an outperform rating on Wolfspeed stock but reduced his price target from $72 to $60, highlighted the lack of clarity in this quarter's results. Buchalter stressed that while there is "nothing broken" at Wolfspeed, the quarter left more questions than answers. The company specializes in developing power-switching and radio-frequency chips.
"We were anticipating a seamless quarter that would allow us to focus on the core aspects of the business," Buchalter mentioned. "Unfortunately, that was not the case." The analyst pointed out that there was limited progress in the contribution from MVF (the Mohawk Valley silicon-carbide fab). Additionally, he noted that gross margins were negatively impacted by accounting changes, resulting in a complex quarter.
Read: Wolfspeed's Stock Plummets as Silicon-Carbide Chip Company Experiences Mounting Losses
Analysis Finds Inconsistencies in Wolfspeed's Performance
Analysts Question Execution and Messaging
In an analysis of Wolfspeed's performance, industry experts have noted some concerns regarding execution and messaging consistency. Buchalter, a respected analyst, expressed belief in Wolfspeed's position in the Silicon Carbide (SiC) market but emphasized the need for improvement in execution and messaging.
A Rollercoaster Ride for Wolfspeed
Matthew Prisco, an analyst from Evercore ISI, maintained his outperform rating on Wolfspeed stock. However, he stressed the importance of positive proof points on execution to regain investor confidence. Prisco expressed that alternative investment options may offer better near-term potential until these proof points are evident.
Challenges in Revenue Growth
Christopher Rolland, an analyst from Susquehanna Financial, adjusted his target price on Wolfspeed stock to $50 from $58, maintaining a neutral rating. While the company showed slight improvement in performance for the quarter ending in June, Rolland observed that this growth was taken from the previous quarter. Rolland highlighted that future revenue growth for Wolfspeed relies heavily on the ramp of MVF, with current device revenue of only $1 million. The company expects to achieve 20% utilization from MVF by the end of fiscal 2024 but anticipates significant revenue recognition two quarters later, in December '24.
Analyst Ratings and Target Price
Among the analysts covering Wolfspeed, 10 have buy-grade ratings, 10 have hold ratings, and two have sell ratings. Based on FactSet data, the average target price for Wolfspeed is now $59.54, down from the previous $65.47. This decrease occurred as at least six analysts reduced their price targets.
Overall, these analyses shed light on the challenges faced by Wolfspeed and highlight areas for improvement to ensure future success in the SiC market.