Wolfspeed is a Buy, says Roth Capital

Roth Capital Partners analyst Craig Irwin is sticking with a “Buy” rating on LED and semiconductor company Wolfspeed (Wolfspeed Inc Stock Quote, Charts, News, Analysts, Financials NYSE:WOLF) in a company note on Tuesday. 

EV carmaker Tesla made an interesting revelation last week at an investor day presentation when powertrain engineering team leader Colin Campbell said the company’s next powertrain will need a lot less silicon carbide transistors — 75 per cent less — without compromising performance. 

The news sent semiconductor stocks dropping, including Wolfspeed, which just last month announced plans to build a big silicon carbide device fabricating facility in Germany. The company said the factory will support accelerating customer demand in the space and is part of Wolfspeed’s overall $6.5 billion global capacity expansion.

“This new fab represents a big step forward for both Wolfspeed and our regional customers, as we enhance the ecosystem for semiconductor production and innovation,” said Gregg Lowe, President and CEO of Wolfspeed, in a press release. “Silicon Carbide devices offer greater energy efficiency and are essential in the global shift toward sustainable electrification.”

Wolfspeed’s share price has fallen about five per cent in recent trading sessions and is now down about 24 per cent for the past 12 months.

With his update, Irwin reiterated a target price of $95.00 per share, which at the time of publication represented a projected one-year return of 33 per cent.

Irwin said Roth would be hosting an expert call on Wednesday with electrification consulting firm Exawatt to discuss Tesla’s comments and the future of the chip market.

Irwin said Tesla’s pronouncement is likely less of a bombshell and more an indication of general industry trends.

“We suspect that this is not an apple’s-to-apple’s comparison and was quite likely the original trajectory planned by all major industry participants,” Irwin wrote.

“We maintain our $95 price target, using a 30x EV/EBITDA multiple on our FY25 (Jun) estimate of $400m. The 30x multiple on FY25 estimates factors WOLF’s leadership in SiC materials, and ramping device production well ahead of competition,” he said.

On Wolfspeeds’s financials, Irwin is forecasting full 2023 revenue and EPS of $922.4 million and negative $0.40 per share, respectively, and 2024 revenue and EPS of $1,400.0 million and positive $0.80 per share, respectively.