Mobileye (MBLY – Snapshot Report), the $8 billion global leader in camera-based Advanced Driver Assistance Systems (ADAS), has produced enough good news in March to convince some investors and analysts that the stock price fall from $60 may have reversed before it has a chance to join the “below the IPO” club like Alibaba (BABA – Analyst Report).
With an enormous share lock-up expiring next week for BABA, it’s no wonder the stock is flirting with new lifetime lows. And MBLY almost suffered a similar fate recently as it was expected the company would conduct a secondary offering, as they filed for in January.
But several events conspired to help the company keep those additional shares “on the shelf.” First, a strong fourth quarter report on February 26 helped clarify the company’s strategy and management execution. Q4 revenue of $39.7 million and non-GAAP net income of $13.3 million both beat consensus expectations. The company also generated $15.4 million in free cash flow.
For the full-year 2014, total revenue of $143.6 million was an increase of 77% year-over-year and non-GAAP net income of $46.8 million equaled growth of 41.5% year-over-year. And full-year 2015 guidance was solid with revenues expected to be $217-218 million vs. the $215 million consensus.
New Markets and Partners
The buzz among Wall Street analysts after this report and the subsequent conference call was very enthusiastic. It’s not that profits are going to be pouring through to bring down the lofty valuation. Instead, analysts are looking at Mobileye’s execution of deals and partnerships with major automobile OEMs and top car brands.
Mobileye technology is available in over 150 car models from 18 car manufacturers, including GM, Ford, Honda, and BMW. Further, Mobileye’s technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016. And the company is already making inroads into China with new business there expected to contribute to revenues this year.
Following the report, analysts began raising EPS projections and the stock became a Zacks #2 Rank on March 4 as estimates were bumped 25% and 15% for this year and next, respectively.
EyeQ: The Total Integrated Solution
Mobileye develops software and semiconductor technology algorithms they call the EyeQ system-on-a-chip. These systems perform detailed interpretations of the visual field to anticipate possible collisions with other vehicles, pedestrians, and other objects.
Also on March 4, the company introduced its 4th generation system-on-chip, the EyeQ4. And they revealed that they have already won a production contract with a global premium European car manufacturer for the technology to launch in 2018.
Relative to the company’s EyeQ3 chip, the EyeQ4 is faster and can support trifocal camera configurations for use in semi-autonomous driving and other high-end functions in a more compact package. The company also announced that it will launch a scaled-down version of the EyeQ4 chip which will be less expensive that the high capability version.
The 2018 launch seems far away but it’s consistent with what some top analysts were expecting. And the scalability of the technology is welcome too as it will provide automobile OEMs flexibility to add features at the best possible cost.
Better Than a Secondary
While investors fretted last month about the coming secondary, MBLY shares declined over 15% to under $33 by early March. But one large and early investor increased their stake by over 80%. Goldman Sachs was a lead underwriter for the IPO last August and they bought 13.3 million more shares in February, as revealed by an SEC 13G filing on the 17th.
The buys brought their stake to 29.6 million shares, or 13.9% of the company. This show of faith by Goldman was enough to restore faith for some investors because their buys occurred on average between $36 and $37.
Analysts in Motion
But analysts don’t respond to institutional buying. They look at management, balance sheets, and growth prospects. And the overwhelming response to the Mobileye growth story this month was very positive. According to AnalystRatings.net and other sources, here were some of the ratings and/or price target moves by major research houses…
3/5/2015 RBC Capital: Buy $55
3/5/2015 Barclays: Buy $66
3/2/2015 Wells Fargo: Buy $52
2/27/2015 Raymond James: Outperform $49
On February 5, RBC Capital Markets analysts said MBLY might enjoy “at least 78% compound annual growth rates in camera technology for auto-braking systems over the next 5 years.” The investment bank notes the Israeli company has a unique, single-camera technology that’s less expensive and more effective than competing technologies and already has a big partner in Delphi.
After earnings in late February, RBC analyst Joe Spak said he thinks there is more potential upside for Mobileye in 2015 as auto customers jump on its lower-cost sensor solutions that are used in autonomous and semi-autonomous driving options. Spak says the firm is expected to generate revenue growth of 53% this year, but he’s expecting a better outcome.
Also last week, analysts at CitiGroup put out a research note maintaining their Buy rating and $64 price target with the view that Mobileye’s “hyper growth” will continue beyond 2017. The ramp of tri-focal camera technology in 2018 and beyond should support growth of at least 50% annually “at the center of the most-powerful automotive megatrend in history,” said the analysts.
What About the Competition?
Another theme that ran through much analyst commentary last week was that Mobileye was leaving the competition behind with their integrated solutions and key customer/partner relationships. This week was no exception.
On March 11, Mobileye announced a new partnership with, Valeo, a key ADAS technology company. The two companies joined forces to combine Mobileye’s EyeQ family of microprocessors and computer vision algorithms with Valeo’s strong driving assistance sensor portfolio.
Under the cooperation agreement, Valeo will design and industrialize a range of front-facing camera solutions and sensor fusion products using Mobileye’s EyeQ technologies. According to StreetInsider.com, Wells Fargo analyst Richard M. Kwas believes “it may take a few years for the product to become commercially available. The deal is relevant because it’s a new relationship for Mobileye, and Valeo is a global leader in several areas, including driving assistance.”
Kwas also noted that competitor announcements have not mentioned OEM/Tier 1 relationships, suggesting Mobileye’s momentum continues to build.
And that should explain why the stock is finding its footing this month above its IPO price of $36.
Disclosure: I own MBLY shares for the Zacks FTM Trader.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money Trader.