Stifel Maintains Buy On Ambarella Ahead Of Q2 Results, Sees Recent Sell-Off 'Overreaction'

• Ambarella, Inc. AMBA has seen a surge of over 173 percent in its share price over the past year, while declining 15 percent since August 20.
• Stifel’s Kevin Cassidy has maintained a Buy rating and $115 price target on Ambarella.
• Cassidy believes the recent sell-off was an overreaction and that the company’s holds technology related leadership in video capture, compression, transmission and analytics.

Analyst Kevin Cassidy expects the company to report strong year-on-year revenue growth when it reports its F2Q16 results on September 1, along with upside potential in the drone and IP security markets.

There have been some investor concerns regarding QUALCOMM, Inc. QCOM targeting its “smartphone SoCs for drone applications, which has pressured the AMBA shares,” the Stifel report said, adding that Qualcomm’s SoC is expected to replace “the 4-5 microcontrollers used in controlling drones rather than Ambarella’s video processor.”

Cassidy believes the 15 percent decline in the stock due to these fears is an overreaction, given that Qualcomm does not intend to compete head-to-head with Ambarella in HD and UltraHD motion video processing.

In addition, Cassidy expects the company to report a 41 percent year-on-year increase in revenue for F3Q16, driven by seasonally stronger GoPro, Inc. GPRO builds. There could also be potential upside to the EPS estimate for the quarter, driven by higher gross margin if drone sell-through exceeds expectations.