On Tuesday, Deutsche Bank adjusted its outlook on Wolfspeed (NYSE: NYSE:WOLF) shares, a semiconductor company, by reducing its price target from $35.00 to $30.00. The firm has chosen to maintain a Hold rating on the stock. The revision reflects concerns about the wider Silicon Carbide (SiC) industry, particularly in relation to the demand for battery electric vehicles (BEVs).
Wolfspeed's last quarter results did not meet expectations due to industrial softness. Recent trends have indicated potential negative impacts from the slowdown in BEV demand on the SiC market.
This is particularly relevant as several Integrated Device Manufacturers (IDMs), including Wolfspeed, have been expanding their SiC device capacity to meet initial expectations from automotive original equipment manufacturers (OEMs), often under long-term agreements.
The significant capacity increase across the industry is now facing challenges due to lower demand forecasts, with global BEV unit sales potentially growing only by 10-20% in 2024. As a result, the market may start to see delays in orders in the coming quarters.
Wolfspeed, in particular, is noted to have substantial device exposure to the supply chains of major automakers such as Ford (NYSE:F) and General Motors (NYSE:GM), as well as an indirect connection to Tesla (NASDAQ:TSLA) through substrates.
The analyst from Deutsche Bank also pointed out that the resurgence of plug-in hybrid electric vehicle (PHEV) sales is unlikely to benefit the company. Looking ahead, there is a risk of margin pressure within the SiC device sector.
Additionally, the core SiC substrate business could face increased competition, especially in the 150mm and 200mm categories. The analyst's comments highlight concerns about supply and demand dynamics in the industry and their potential effects on Wolfspeed's financial performance.
InvestingPro Insights
As Wolfspeed (NYSE: WOLF) navigates a challenging period in the semiconductor industry, real-time data from InvestingPro provides a deeper understanding of the company's financial health and market position. With a market capitalization of $3.01 billion, Wolfspeed's stock price volatility is underscored by a Price to Earnings (P/E) ratio of -3.99, reflecting the market's concerns about its profitability. The company's revenue growth remains positive at 23.7% over the last twelve months as of Q2 2024, which may offer a silver lining amidst the current industry headwinds.
InvestingPro Tips highlight several critical areas for investors to watch. Analysts have revised their earnings downwards for the upcoming period, and anticipate a sales decline in the current year. Moreover, the company's gross profit margins are considered weak at 21.52%. For those considering an investment in Wolfspeed, it's important to note that analysts do not expect the company to be profitable this year. However, the company's liquid assets do exceed its short-term obligations, providing some financial stability.
For potential investors looking to make an informed decision, there are 12 additional InvestingPro Tips available at https://www.investing.com/pro/WOLF. These insights could prove invaluable in assessing Wolfspeed's future in a fluctuating market. To access these insights and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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