Wolfspeed (NYSE: WOLF) Plummets on Weak Q4 and Accounting Change Worries

Wolfspeed (NYSE: WOLF) faced a steep decline in trading on Thursday following the release of disappointing fourth-quarter results and unsettling guidance. The semiconductor company’s performance led to concerns among Wall Street analysts, who pinpointed issues related to accounting changes and the lack of profitability.

Top-rated William Blair analyst Jed Dorsheimer, while reiterating a Buy rating on the stock, emphasized the “abrupt change” in accounting as a likely source of investor unease. He noted that despite no fundamental shifts in the business, this accounting adjustment appeared to have fatigued investors, dampening sentiment.

Dorsheimer further commented on the challenges Wolfspeed faces in achieving over 40% utilization at Mohawk Valley, impacting the unit’s economics. He noted that investor weariness resulting from the company’s track record of underwhelming results has led to volatility, with downside risks.

The company’s accounting changes, particularly in relation to the Mohawk Valley fab, are expected to lead to a $37 million impairment charge in the first quarter, significantly impacting margins.

Meanwhile, another top-rated Bank of America analyst, Vivek Arya, kept a Sell rating on the stock and lowered his price target to $49 from $56. The analyst’s price target implies an upside potential of 11.34% at current levels.

Arya noted that while the company’s revenue guidance missed estimates, it was a substantial hit to margins due to accounting shifts that were a cause for worry. The analyst pointed out that there was a high possibility of the company’s gross margins expanding as it targets a gross margin of 20% at the end of the 2024 fiscal fourth quarter. However, its current gross margins were below its peers.

Analysts are sidelined about WOLF stock with a Hold consensus rating based on two Buys, five Holds, and one Sell.