Mobileye Alert: Morgan Stanley Stays Bullish, But Slashes Price Target

• Mobileye NV MBLY shares have lost 42 percent in the last six months.
• Morgan Stanley’s Adam Jonas maintained an Overweight rating for the company, while reducing the price target from $80 to $57.
• Although advanced ADAS penetration could lead to earnings growth, large tech players add potential risk to Mobileye’s market share, margins and terminal growth rate, Jonas stated.

Analyst Adam Jonas said that the bull and bear cases for Mobileye had been reduced from $150 to $90 and from $30 to $20, respectively. He added, however, that the downward revisions were entirely on account off longer-term forecasts, beyond 2018, for gross margin, market share, and terminal growth.

The LT forecasts have come under pressure due to “various industry/competitive outcomes from nontraditional players set on disrupting the automotive ecosystem,” Jonas wrote.

Mobileye’s shares have recently been highly volatile, with the market trying to evaluate how legitimate the new potential competition is. “While we continue to believe that Mobileye is in pole position to lead the next wave of advancements, we have revised our forecasts to show a greater awareness of the competitive landscape that is taking form,” the analyst commented.

Jonas believes that Mobileye has “very high” near-term barriers to entry in the growth of vision-based ADAS systems in human-driven applications that have been commercialized by conventional auto firms. However, there are concerns in the longer term, regarding the company’s barriers to entry “in a fully-autonomous ecosystem commercialized by large tech hardware and software firms.”

There is 51 percent upside to Mobileye’s shares, given the near-term visibility into the company’s earnings growth and cash flow generation. Jonas added, “Mobileye remains the only pure play on two of the fastest growing and most powerful trends in autos today: autonomous cars and software.”