Mobileye's (MBLY) Valuation 'Rich', Pacific Crest Starts at Sector Weight

May 13, 2015 7:04 AM EDT
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Price: $35.79 -0.5%

Rating Summary:
    17 Buy, 13 Hold, 0 Sell

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Pacific Crest initiated coverage on Mobileye N.V (NYSE: MBLY) with a Sector Weight rating. Analyst Brad Erickson said the stock's valuation is rich, and he described ADAS sentiment as "frothy."

"Mobileye has a huge technology lead in active safety/autonomous driving, but the stock's valuation reflects what we believe are optimistic adoption scenarios for each with little discounting for future competitive risk. Our checks suggest pure ADAS adoption is lower than many realize and the auto supply chain is fraught with structural challenges, which could make sustainable upside scenarios challenging," said Erickson.

"We believe that expecting Mobileye to improve its leverage with tier-1 supplier partners in the future assumes that tier-1 suppliers' ADAS investments will not be successful. Not a great bet, in our view. Mobileye has quietly lost two partners in the past year (Autoliv and Gentex), with others working on their own in-house developments," continued the analyst.

Erickson added, "Trading at 30x outyear sales and 67x out-year EPS, we believe MBLY's valuation is rich even accounting for high growth, tremendous long-term visibility and superlative profitability. We are valuing the company on what we believe is a well-balanced scenario in 2020 of 45% ADAS adoption, 50% MBLY market share, 60% net income margins and a 20x earnings multiple discounted back, which yields a fair value of $46. Incremental design wins, tier-1 partnerships and OEM ADAS standard fitments could all be upside drivers, but we have reservations around the pace of market adoption and competition, which underpins our Sector Weight rating."

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 $46.23 yesterday.

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