Dougherty & Co Upgrades Mobileye N.V (MBLY) to Buy; Analyst Highlights 'Overreaction' to Tesla News

(Updated - July 27, 2016 9:48 AM EDT)

Dougherty & Co upgraded Mobileye N.V (NYSE: MBLY) from Neutral to Buy with a price target of $60. The change follows the release of Q2 results and news Mobileye will not supply Tesla beyond the EyeQ3 chip. In the view of analyst Charles Anderson, the biggest near-term fear has passed, and the stock's decline was an "overreaction."

"We believe there are more near-term catalysts working in favor of the stock (especially given that the biggest near-term fear -losing Tesla -- is over). We believe MBLY will be a leader in the nascent ADAS market, as evidenced by its working with 20+ OEMs that collectively produce more than 50% of the vehicles sold worldwide annually, and for which MBLY is capturing only 5% of the annual TAM. ADAS will carry MBLY through 2019. Post-2019, we believe there will be enough autonomous market opportunity to welcome multiple players. Mobileye continues to add to its high-profile partners in autonomous, and we expect at least one, if not two, announcements by year-end," said Anderson.

Commenting on Tesla, the analyst said, "We note that both Mobileye and Tesla staked claim to being the party that separated the relationship. Our sense from talking with industry sources is that the relationship between Mobileye and Tesla has been headed to this outcome for some time. We believe Tesla would like to push the envelope more with autonomous features and increasingly with their own algorithms. Our best guess at this point (based on our checks) is that Tesla will eventually migrate to a hardware solution from Bosch with processing done by Nvidia using internally-generated Tesla algorithms,"

Anderson added, "We believe the stock’s reaction to the Tesla news was an overreaction because 1) Tesla comprises about only 1% of Mobileye’s revenue today 2) Mobileye said that of its $1.1BN 2019 revenue target, Tesla contributes ~2% (or ~$17MM on 350K cars). Tesla is arguably Mobileye’s most technologically advanced customer and has helped raise Mobileye’s profile. At the same time, given that Tesla is such a small customer in terms of revenue contribution, the way Mobileye’s stock is coupled with Tesla is not always justified. Bottom-line, we believe the industry can support multiple players, including captive OEM solutions."

For an analyst ratings summary and ratings history on Mobileye N.V click here. For more ratings news on Mobileye N.V click here.

Shares of Mobileye N.V closed at $45.33 yesterday.

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