TLDR
- Wolfspeed stock climbed 15.4% on Wednesday to $30.80 following its late September exit from Chapter 11 bankruptcy
- The restructuring cut total debt by 70% and reduced debt payments by 60%, allowing the company to survive
- Original shareholders were diluted to just 5% of new shares while creditors received 95%
- Analysts rate the stock as “Reduce” with a consensus price target of $9.80, far below current levels
- Additional dilution is expected as creditors convert warrants into shares
Wolfspeed stock surged 15.4% on Wednesday as investors reacted to the company’s recent bankruptcy emergence. Shares closed at $30.80 after reaching an intraday high of $30.84.
The chipmaker completed its Chapter 11 restructuring in late September. The process allowed Wolfspeed to eliminate 70% of its total debt and slash debt payments by 60%.
Trading volume hit 703,368 shares during the session. This marked a 93% drop from the average daily volume of 11.9 million shares.
The broader market also posted gains. The S&P 500 rose 0.5% while the Nasdaq Composite added 0.9%.
Shareholder Dilution Takes Center Stage
The bankruptcy exit came at a steep cost for existing investors. Wolfspeed canceled all original shares and issued new stock under a different structure.
Former shareholders received only 5% of the newly issued shares. Creditors claimed the remaining 95% as part of the debt restructuring agreement.
The company had warned investors about potential losses before the restructuring. A Form 8-K filing with the SEC explicitly stated that equity holders could experience major losses on their investments.
Wolfspeed’s market capitalization now stands at $785 million. The stock’s 52-week range spans from $0.39 to $34.28, reflecting extreme volatility.
The company’s financial metrics remain challenging. Wolfspeed carries a debt-to-equity ratio of 30.65 and posts a negative gross margin of 16.17%.
Analyst Outlook Remains Bearish
Wall Street maintains a cautious view on Wolfspeed. Weiss Ratings reaffirmed a “sell (e+)” rating on the stock in late September.
The consensus analyst rating sits at “Reduce.” Four analysts have buy ratings, two recommend holding, and five advise selling.
The average price target stands at $9.80. This represents a 68% discount to the current trading price of $30.80.
More dilution appears likely in the near term. Creditors received warrants as part of the restructuring package that can be converted into additional shares.
Note holders are expected to exercise these warrants and sell the resulting stock. This could create selling pressure and further dilute existing shareholders.
Several institutional investors have taken small positions recently. New stakes valued between $28,000 and $32,000 were acquired during the first and second quarters.
The stock maintains a beta of 1.29, indicating higher volatility compared to the broader market. Its 50-day moving average sits at $4.95 while the 200-day moving average is $3.19.
Wolfspeed’s debt restructuring eliminated billions in obligations but transferred ownership to creditors. The company can now focus on operations without the immediate threat of bankruptcy, though profitability remains elusive.
