Barclays Out In Defense Of Mobileye, Remains As Top Pick

• Mobileye NV MBLY shares have lost 23 percent since August 19, when it was trading above $60.
• Barclays’ Brian A. Johnson maintained an Overweight rating for the company and a price target of $76.
• Although Mobileye’s shares have plummeted due to increased competition, Johnson pointed out that this does not necessarily translate to pricing pressure for the company.

Mobileye’s shares have declined 25 percent over last month, as compared to a 5 percent decline in the S&P. Analyst Brian A. Johnson said that the shares have been under pressure due to a rise in competition, which could adversely impact the company’s market share and margins.

Johnson believes that the concerns are “overdone.” He explained that Mobileye is expected to continue to be a market leader and a rise in competition “doesn’t equate to pricing pressure.” Moreover, growth of the advanced driver assistance [ADAS] market is higher than what was expected.

Despite increased competition in the ADAS/semi-autonomous market, and although MBLY may see some erosion from its current ~65% level, it should remain a share leader (50%+), as AEB functionality emerges. Even with share in the low 50% range, we think the stock still has meaningful upside

Mobileye currently leads the market with approximately 65 percent market share. While some share contraction is possible due to competition, the company would continue to be a market leader, with +50 percent share, with the emergence of the AEB functionality. Johnson believes that even if the share contracts to the low 50 percent range, the company’s stock has “meaningful upside.”

In the report Barclays noted, “OEM decisions to source away from MBLY are not driven by pricing, but by a combination of a desire for supplier diversity and to promote ‘national champions’ in the supply base.”

Anderson added that Mobileye would benefit with OEMs that were driven purely by cost, in view of the company’s mono camera-only solution being the most cost-effective one, which can eliminate the need for radar. He concluded that “Increased competition doesn't equate to pricing pressure.”

The EPS estimate for 2016 has been raised from $0.68 to $0.77.