Tuesday, Canaccord Genuity maintained a Buy rating on Wolfspeed (NYSE: NYSE:WOLF) but lowered its price target to $45 from $47. The adjustment follows recent concerns over electric vehicle (EV) demand and liquidity issues within the industry. Canaccord's analyst cited a reduction in the company's gross margin guidance as a contributing factor to the revised target. Despite the challenges, the firm remains optimistic about Wolfspeed's prospects in the EV market.
The analyst from Canaccord Genuity expressed a positive outlook for Wolfspeed's EV demand, noting that the company's market share is still relatively small, and its backlog of design wins is robust. This perspective suggests confidence in Wolfspeed's ability to secure a solid position in the growing EV sector. The firm's backlog, which is an indicator of future revenue, appears to support this optimism.
Regarding liquidity, the analyst pointed to upcoming government initiatives, such as the CHIPS Act, which are expected to provide financial support and could alleviate some of the market's concerns. These initiatives are anticipated to bolster Wolfspeed's balance sheet and contribute to the company's financial stability.
Canaccord Genuity's revised price target of $45 is based on approximately 13 times the firm's forecasted adjusted earnings per share (EPS) for the fiscal year 2027, which is set at $3.62, down from the previous estimate of $3.46.
The analyst explained that this multiple represents a discount compared to the average of ~18 times the calendar year 2026 adjusted EPS for Wolfspeed's competitors. The rationale for the discount is tied to the expectation of applying a higher multiple as Wolfspeed's management demonstrates its ability to execute its strategy.
In summary, while acknowledging the current headwinds facing the EV industry and Wolfspeed's recent margin guidance reduction, Canaccord Genuity continues to see value in the company's stock. The firm's long-term view, supported by expected government support and a strong design win backlog, underpins the decision to retain a Buy rating despite the modest reduction in the price target.
In other recent news, Wolfspeed has delayed the construction of its $3 billion chip plant in Germany, amidst struggles in the European Union's semiconductor industry. This development comes as the company shifts focus to increasing production at its New York site.
Meanwhile, Mizuho has maintained a Neutral rating on Wolfspeed but raised the price target to $28.00, reflecting revised estimates for the company's future revenues and earnings per share. Deutsche Bank has also revised its price target on Wolfspeed stock, reducing it to $25.00 due to softer guidance for the June quarter.
TD Cowen shifted from a "Buy" to a "Hold" rating on Wolfspeed, citing concerns about the company's prospects in the market. The firm also lowered its price target for the company's shares to $25. JPMorgan adjusted Wolfspeed's price target to $31 following the company's third fiscal quarter results, which highlighted challenges in the Industrial & Energy market.
These are among the latest developments for Wolfspeed, a company that specializes in Silicon Carbide materials and devices.
InvestingPro Insights
As Canaccord Genuity maintains a positive stance on Wolfspeed's position in the EV market, real-time data from InvestingPro provides a clear picture of the company's financial health and stock performance. With a market capitalization of $2.89 billion, Wolfspeed operates with a significant debt burden and is quickly burning through cash, as highlighted by InvestingPro Tips. Analysts also anticipate a sales decline in the current year, which may impact the company's ability to reach its growth targets.
The company's stock has experienced notable fluctuations, with a price total return of -53.59% over the last year, indicating high volatility and potentially higher risk for investors. Additionally, Wolfspeed's gross profit margin stands at 17.51% for the last twelve months as of Q3 2024, which is considered weak and could signal challenges in maintaining profitability.
InvestingPro users can find an additional 12 InvestingPro Tips for Wolfspeed, offering a comprehensive analysis of the company's financial metrics and stock performance. For those interested in gaining deeper insights and making informed investment decisions, you can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.