Meeting its announced CapEx goals for the year, semiconductor firm Wolfspeed (NYSE:WOLF) is all set to receive a $2 billion investment from asset management company Apollo Global Management (NYSE:APO). This will be used to support its factory expansion plans with an end goal of meeting automakers’ demand.
Upon the news, the stock is trading 4% higher in premarket today.
Wolfspeed Infused for Expansion
Apollo Global, leading a group of lenders, announced a $2 billion investment in Wolfspeed to expand the latter’s operations in the U.S.
The financing is divided into two parts: $1.25 billion of cash is immediately available while the remaining $750 million can be accessed later. The cash facility is structured as seven-year secured notes, carrying a coupon of 9.875%, repayable after three years.
Wolfspeed’s two production facilities, which supply silicon carbide wafers to automakers for EVs, chargers, and other products, will use this financing as a backing.
Despite having significant access to the financial markets, Wolfspeed sought Apollo’s private credit funding option to take advantage of the additional financing option later. Also, the avenue would narrow down the exposure of its Intellectual Property to a limited number of parties who provide the fund.
Financing Purpose
In its latest earnings call, Wolfspeed CFO Neill Reynolds highlighted that the company will require ~$1 billion of additional non-government financing until the end of the calendar year. This will be to cushion its expected $2 billion capital expenditure in FY24.
The company’s CapEx is majorly targeted for 200-millimeter substrate facility construction and tool capacity at two of its plants, JP and Tyler City and at Wolfspeed’s Durham campus in North Carolina.
Meanwhile, the company sees Q4 estimated expenses to be in the range of $77 to $79 million, which is related to factory start-up and underutilization costs, among the many other expenses. For FY24, Wolfspeed forecasts revenue to range between $1 and $1.1 billion, based on the current plan for 200mm silicon carbide substrate capacity.
Is Wolf Stock a Buy?
Of the 18 Wall Street Analysts covering Wolfspeed stock, nine rate it a Buy while eight assign it a Hold, taking the average analyst consensus rating to Moderate Buy. Based on the 12-month analyst average price target of $65.13 it implies a 31.7% upside potential from current levels.
In mid-May, Citi Analyst Atif Malik maintained its Hold rating on WOLF however lowered the price target to $48 from $60 citing weakening auto demand in 2H23. The analyst believes that although the stock has seen a significant correction amid supply-related manufacturing issues, rising competition from Chinese substrate makers poses as a threat to the company.
In the past 6-month trading period, the WOLF stock price has eroded 29.2% of its value, while the year-to-date loss stands at 26.4%.
Also in mid-May, Jefferies initiated Wolfspeed with a Hold rating at the same time with a price target of $46. The rating firm sees the former’s silicon carbide (SiC), market as its strength. However, premium valuation is cited as a hurdle in investors’ buying trends.
