Auto Suppliers, The Best Way to Play CES? - Wells Fargo (MBLY) (ALV) (HAR)

CES is a widely anticipated event for tech companies but could the Auto suppliers be this years smartest trade? Wells Fargo analyst, Richard Kwas, offers a couple of ideas that you don't normally pair with CES but could benefit from the event: MobilEye (NYSE: MBLY), Autoliv (NYSE: ALV) and Harman International (NYSE: HAR).

MBLY--mgmt plans to outline its technology road map for autonomous vehicles. MBLY’s presentation is the most important one to follow. The company intends to provide its technology roadmap for autonomous solutions. Unlike last year, the company is devoting significant mgmt resources to the event (CTO Shashua will speak in depth). Catalysts include anew OEM customer announcement and/or an extension of existing OEM partnership that involves significant MBLY content add (e.g., semi- and autonomous functionality extended across a volume portfolio). But there are risks as well: CTO Shashua provides an in-depth overview of MBLY’s technology advancements, but details about timing and OEM commitments are not offered which could cause Bears to renew their pressure. In general, the analyst expects autonomous functionality and commercial availability to be the most important theme followed by in-vehicle connectivity and cybersecurity.

ALV - ALV will demonstrate its active safety technology suite. Participants will experience the company’s in-house vision algorithm (which will likely include an autonomous emergency braking demonstration). Recall, the company also provides radar systems, night vision equipment, and sensor fusion software. Details about the company’s algorithm vision and how it compares to the competition could be a catalyst to the shares. We also anticipate hearing about how the recent JV with Nissin Kogyo will fit into the company’s long-term strategy to support autonomous driving.

HAR - CES will open an opportunity for mgmt to display its latest infotainment, audio, cybersecurity and over the air update technologies. More importantly, we anticipate management to reiterate its views on global infotainment take rates and provide mid-year details about the state of the business. In our opinion, recent share price underperformance is unwarranted (-14.3% vs. -1.7% for SPX since 10/31). We believe infotainment systems will be critical to vehicle connectivity and the proliferation of smartphones will help drive infotainment take rates. In addition, at current valuation (13.3x consensus C’16 EPS), the shares are inexpensive, in the analyst's opinion.

No change to ratings or Price Targets.

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