Is Wolfspeed stock still a buy?

Ahead of the company’s third quarter results, Roth MKM analyst Scott Irwin has maintained his “Buy” rating on Wolfspeed (Wolfspeed Stock Quote, Chart, News, Analysts, Financials NYSE:WOLF).

On May 1, after market close, WOLF will report its Q3, 2024 results.

The analyst outlined what he expects from the quarter.

“We expect Wolfspeed to report essentially inline F3Q24 (Mar) results, but for the forward guide to reflect the deteriorating outlook in EV markets,” he wrote. “Gross margin guide will likely be weak. With the growth rate of EV deliveries slowing to roughly 10% in 2024 we expect inventory digestion to crimp near-term revenue at Wolfspeed. Visible program weakness at customers GM (GM-NC), Ford (F-NC), and Tesla (TSLA-Neutral) means this is already well understood. Progress with 200 mm SiC materials and MVF utilization will be our focus.”

In a research update to clients April 30, Irwin maintained his “Buy” rating and price target of $50.00 on WOLF.

The analyst thinks WOLF will post EPS of negative $2.52 on revenue of $835.8-million in fiscal 2024. He expects those numbers will improve to and EPS loss of $1.25 on a topline of $1.40-billion in fiscal 2025.

“We maintain our $50 price target using a discounted earnings valuation on the FY27 revenue guidance scenario,” Irwin wrote. “Revenue guidance given at the October 2022 analyst day is for FY27 revenue of $3.6bn [$2.9bn Power, $700m materials], and we assume roughly 50% gross margins on the full scale production. If we assume frictional costs of $1bn, or well over double FY23 levels, this implies around $800m in operating income. If we apply a 20x multiple to this targeted profit level, and discount back at 35% for three years, the shares out of around 125m implies a $50 stock. This valuation scenario obviously only includes the existing footprint plus announced fab in Germany, and does not include a second fab in the U.S. (or third mega fab) that could likely be funded by the CHIPS Act. The heavy 35% discount rate is to reflect near-term uncertainty while investors digest the accounting changes and assess Wolfspeed’s competitive position.”