The company received a price target boost thanks to a survey indicating corporate acceptance of autonomous driving. But be careful: Mobileye is already priced for outrageous growth.
Mobileye ( MBLY) , a maker of chips used by Tesla Motors ( TSLA) and others to manage automated driving technologies, got a boost Monday based on a survey that showed fleet customers are surprisingly receptive to next-generation systems. Investors should be warned, however, that a lot of that optimism is already baked into Mobileye shares.
Piper Jaffray raised its price target on Mobileye to $60 a share from $50, which is more than 25% above the Israeli-based company's previous close. Shares of Mobileye traded up more than 1% in afternoon trading on Monday.
Piper Jaffray senior research analyst, Alexander E. Potter, in a note based the price boost on the firm's survey of 660 U.S. fleet and small business customers. Some 30% of respondents indicated they will either probably or definitely increase advanced drive assistance purchases in the coming three years, with larger fleet owners particularly interested.
Potter said that fleet customers are important for adaptation of new technologies because fleets buy between 5% and 20% of new light- and medium-duty vehicles, depending on how broadly one defines a fleet. And fleet buyers, relative to consumers, tend to make decisions more grounded in rational, economic analysis than on hype, according to Potter, making them "uniquely capable of signaling the long-term viability of new technologies."
The analyst estimated that about 40% of all vehicles produced by 2020 will have some sort of camera-based assisted-driving functionality. And while competition could eventually emerge, Potter sees little threat in the near-term.
"While we acknowledge the ongoing debate regarding the eventual threat of competition, we also believe it will be at least a couple years before definitive data points emerge to assess the viability of competitive offerings," the analyst wrote.
The survey results come amid a growing debate over Tesla's Autopilot features following three recent accidents, one fatal, where that company's driver-assist technology was reportedly in use.
While a large number of companies including automakers and tech titans likeAlphabet are dabbling with self-driving technologies, many using Mobileye chips, it remains to be seen whether regulators and the U.S. tort system allow pioneers to move as fast as some would like.
It is important to note that Mobileye stands to benefit even if the most ambitious technologies are stalled. The company provides components and software used in less controversial offerings including lane-departure prevention systems and emergency braking, and should see growth regardless.
The bigger question is valuation, as skeptics might argue that Mobileye is already priced for the upbeat future Potter is predicting. The company today is already priced at more than 35 times last year's sales and 45 times projected earnings, metrics off the chart for auto suppliers. Shares of the company have more than doubled from lows hit in February.
And while Mobileye can grow even if autonomous vehicles take decades to arrive, the outlook for the company is tied closely to the idea of self-driving cars. Investors who have handed a $10 billion-plus market capitalization to a company expected to generate just $370 million in revenue this year are not thinking about incremental improvements -- they are betting on a revolution.
Self-driving cars are the future, and Mobileye at present is well-positioned to benefit from the trend. The question is how quickly the excitement from fleet drivers and others will translate into huge sales gains. Investors should proceed with caution.
Lou Whiteman
Source:https://www.thestreet.com/story/13643119/1/analyst-expects-mobileye-shares-to-zoom-but-investors-be-warned.html
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