Is $6 a Reality for Wolfspeed (WOLF) Or Wishful Thinking?

For 28 years, semiconductor company Cree, Inc. traded on the NASDAQ. It specialized in the use of silicon carbide (used in LEDs) and gallium nitride to manufacture wide-bandgap chips, which have much higher tolerances for voltage and temperature. Cree later built a business that added LED lighting and RF power divisions, which were eventually sold off before changing the company name to Wolfspeed, Inc. (NYSE: WOLF) in 2021 to focus on semiconductors.

With burgeoning AI demands already escalating, Wolfspeed made plans to build a new plant in Germany, as well as a North Carolina facility to supply silicon wafers for its primary upstate New York factory. Continued EU Chips Act bureaucratic delays caused the European coinvestors to drop out from the project, leaving it in limbo. Subsequent soft sales and shrinking cash reserves led to Wolfspeed announcing plans to file for Chapter 11 Bankruptcy restructuring in May. 

A Lifeline and A Plan

Apollo Global Management stepped in and announced a July financing life preserver with a $1.25 billion secured note and an option for $750 million more, with a 9.875% interest coupon. Apollo already manages $1.5 billion of Wolfspeed’s overall $6.5 billion debt. The Restructuring Support Agreement deal’s other aspects included:

• Appointment of turnaround specialist Gregor van Issum, who has a successful 20-year track record, as new CFO. 
• Wolfspeed receives $275 million via second lien convertible notes.
• $250 million in current senior secured notes are to be paid down.
• An outstanding $2 billion Renesas Electronics and outstanding convertible notes refinance into $500 million in new notes combined with 95% new equity.
• Current shareholders take a 95% reduction in equity in reissued new common stock. 

Opinions Are Split

Most analysts concur on the following conclusions:

• The post-reorganization value of Wolfspeed is anticipated to be roughly $1.1 billion.
• Current shareholders are basically getting wiped out, being left with only 5% of previous share value.

Speculation on Wolfspeed’s future is split. The huge surge in AI development and expansion is fueling the demand for other support technology, and wide-bandgap chips, which are used in transportation, wireless systems, power supplies, and power inverters, are crucial for that growth’s commercial viability. On the other hand, the Apollo and Renesas restructuring deal may not be enough to get Wolfspeed back to sufficient health to climb out from its sizable $6.5 billion debt overhang, and Chapter 11 bankruptcy may just be prolonging a slow death.

Among institutional investors and analysts, the following large players are bearish:

• T. Rowe Price sold 12.473 million shares (-99.6%), estimated at $38.17 million.
• Jana Partners sold 4.988 million shares (-100%), estimated at $15.263 million.
• D.E. Shaw sold 3.086 million shares (-57.5%), estimated at $9.443 million.
• UBS Group sold 2.576 million shares (-15.1%), estimated at $7.883 million.
• Citigroup issued a “sell” rating.
• JP Morgan Chase issued an “underweight” rating.
• Bank of America issued an “underperform” rating.

Approximately 169 institutions bought large blocks of shares vs. 145 institutions that were net sellers. 

Among institutional investors and analysts, the following large players are bullish:

• Vanguard Group bought 2.989 million shares (+18.8%), estimated at $9.147 million.
• Capital World Investors bought 2.929 million shares, estimated at $8.964 million.
• BlackRock bought 2.589 million shares (+15.8%), estimated at $7.924 million.
• Goldman Sachs issued a “buy” rating.
• Canaccord Genuity issued a “buy” rating.
• Piper Sandler issued an “overweight” rating. 

Is $6.00 A Pipedream Or a Real Possibility?

Surprisingly, analysts from both sides of the fence seem to concur that a $6.00 average  12-month price target for Wolfspeed is a strong possibility. Given that the price at the time of this writing is $1.80, the large institutional control is likely going to mean a very thin retail float, which can elevate stock prices with minimal volume on positive news.

Among the bears:

• Vivek Arya of Bank of America predicts a $6.00 target.
• Atif Malik of Citigroup set a $3.00 target. 

For the bulls:

• Piper Sandler’s Harsh Kumar set a $6.00 target.
• Brian Lee of Goldman Sachs has an $8.00 target.
• George Gianarikas of Canaccord Genuity set a $10.00 target.

Given the current price of Wolfspeed, both bullish and bearish analyst prognostications seem to agree that there is upside for the stock price – they just hold different opinions as to the degree. 

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