Wolfspeed Inc (NYSE:WOLF) Downgraded to Equal Weight

Wolfspeed Inc (NYSE:WOLF) stock fell 4.65% (As on April 3, 11:10:47 AM UTC-4, Source: Google Finance) after Wells Fargo downgraded the company to Equal Weight from Overweight with a price target of $30, down from $55. The analyst in coverage noted weaker-than-expected demand for silicon carbide devices, higher supplies, and the company’s lack of profitability. The downgrade reflects the difficulty in finding new silicon carbide leadership beyond Tesla, silicon carbide wafer pricing, and how these factors impact Wolfspeed’s capital flexibility.

Wells Fargo’s analysis suggests that Tesla, which drives approximately 55% of the SiC market demand, may experience a decline in volumes in 2024. Without a substantial increase in demand from other key players such as BYD, Mercedes-Benz, Hyundai, or the industrial sector, the SiC demand may not meet the expected growth forecasts. Market research firm Yole Development has projected a 38% growth, while ON Semiconductor anticipates a 25% increase. The bank acknowledges that Wolfspeed’s connection to Tesla is indirect, through the materials side of its business, and emphasizes that the concerns raised are not exclusive to Wolfspeed but extend to other companies in the SiC market. However, the particular focus on Wolfspeed is due to its one-third business share in the SiC merchant materials supply market, including the provision of bare and epitaxial wafers.

Wells Fargo highlighted Wolfspeed’s unique position due to its exclusive exposure to the SiC market and its current lack of profitability, which were key factors in the decision to downgrade the stock. While the long-term outlook for SiC in EV applications remains positive, the near-term uncertainties have prompted a more cautious view on Wolfspeed’s stock.

For its third quarter of fiscal 2024, Wolfspeed targets revenue from continuing operations in a range of $185 million to $215 million. GAAP net loss from continuing operations is targeted at $134 million to $155 million, or $1.07 to $1.23 per diluted share. Non-GAAP net loss from continuing operations is targeted to be in a range of $71 million to $87 million, or $0.57 to $0.69 per diluted share. Targeted non-GAAP net loss from continuing operations excludes $63 million to $68 million of estimated expenses, net of tax, primarily related to stock-based compensation expense, amortization of discount and debt issuance costs, net of capitalized interest, project, transformation and transaction costs and loss on Wafer Supply Agreement.

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