Ambarella (AMBA) Checks Positive, Qualcomm (QCOM) Concerns Overdone, Says Pacific Crest

Pacific Crest reiterated an Overweight rating on Ambarella (NASDAQ: AMBA) with a price target of $123. Analyst Brad Erickson said checks reinforce his confidence in the stock, and he views shares as attractive at current levels.

Erickson also commented on potential competition from Qualcomm (NASDAQ: QCOM), calling concerns "overdone."

"Drone demand is strong, GoPro (Nasdaq: GPRO) sell-through is steady and competitive concerns appear baked into the price, so we think AMBA looks attractive at current levels trading at a 0.44x PEG on this year's EPS...and numbers are almost certainly still too low," said Erickson.

"Drone demand remains strong with most specialty stores in the United States having less than two weeks of inventory and some stores still struggling to secure steady supply. U.S. big box GoPro checks yielded days of inventory at 17.7 versus 14.3 last month, however, on flat sell-through, which was encouraging. The higher GoPro DOI m/m appears to be earlier preparation for the Q4 holiday period, but are still below the peak of three weeks we found last year. Further, with hundreds of incremental doors to fill for the holiday in Europe, GoPro can surmount expectations for the holiday even without a high-end refresh given the channel starvation that occurred in Europe last year," added the analyst.

Erickson added, "While QUALCOMM's imminent entry into drones could have a modest impact on Ambarella's business, given its roughly 10% revenue exposure to drones, the past month's 30% pullback appears overdone. Further, we think Ambarella's power-management benefits offer compelling differentiation for this uber-niche category where traditional cost and size integration benefits may not outweigh the critical need for high-quality video capture and low power consumption."

For an analyst ratings summary and ratings history on Ambarella click here. For more ratings news on Ambarella click here.

Shares of Ambarella closed at $87.00 yesterday.

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