TLDR
- Wolfspeed stock jumped 15.4% on Wednesday, with shares trading at $30.80 after the company recently emerged from Chapter 11 bankruptcy protection
- The restructuring eliminated 70% of Wolfspeed’s total debt and reduced debt payments by 60%
- Existing shareholders were heavily diluted, receiving only 5% of new shares while creditors received the majority
- Analysts maintain a “Reduce” rating on the stock with a consensus price target of $9.80
- The stock’s market cap stands at $785 million, with volume reaching 703,368 shares during trading
Wolfspeed stock surged 15.4% on Wednesday. The chipmaker’s shares closed at $30.80 after a volatile trading session.
The rally comes weeks after the company exited Chapter 11 bankruptcy protection. Wolfspeed successfully negotiated a debt restructuring plan with its creditors in late September.
The restructuring delivered substantial debt relief. The company slashed its total debt by 70% and reduced debt payments by 60%.
Trading volume reached 703,368 shares during the session. This represents a 93% decline from the average daily volume of 11.9 million shares.
The broader market posted gains as well. The S&P 500 rose 0.5% while the Nasdaq Composite climbed 0.9%.
The Cost of Survival
The debt relief came with a steep price for shareholders. Wolfspeed canceled and delisted all existing shares as part of the bankruptcy process.
New shares were issued under a different allocation structure. Original shareholders received only 5% of the new stock.
Creditors claimed the remaining 95% of shares. This massive dilution wiped out most of the value for existing investors.
Wolfspeed had warned about this outcome before the restructuring. In a Form 8-K filed with the SEC, the company stated that equity holders could experience a major loss on their investment.
The warning proved accurate. Shareholders who held through the bankruptcy saw their positions nearly eliminated.
More Dilution Ahead
The current share structure may not be final. Creditors also received warrants as part of the restructuring deal.
These warrants can be converted into additional shares. Note holders are expected to exercise these warrants and sell the resulting stock.
This means further dilution is likely on the horizon. The selling pressure could impact the stock price in coming months.
Analyst sentiment remains bearish on Wolfspeed. Weiss Ratings reaffirmed a “sell (e+)” rating for the stock in late September.
The consensus rating among analysts is “Reduce.” The average price target sits at $9.80, well below the current trading price.
Four analysts rate the stock as a buy. Two have assigned hold ratings while five recommend selling.
The company’s financial metrics reflect its struggles. Wolfspeed has a debt-to-equity ratio of 30.65 and a negative gross margin of 16.17%.
The stock trades at a price-to-earnings ratio of -2.55. Its 52-week range spans from $0.39 to $34.28.
New institutional investors have taken small positions recently. Several firms acquired stakes valued between $28,000 and $32,000 during recent quarters.
Wolfspeed’s market capitalization now stands at $785 million. The stock maintains a beta of 1.29, indicating higher volatility than the broader market.
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