Ambarella shares rallied on Tuesday as analysts following price target increases from at least two firms. The GoPro supplier significantly beat earnings estimates last week, but its stock declined as investors were concerned about the delayed revenue resulting from the earthquake in Japan.

Ambarella

Ambarella price target to $80

FBN analyst Shebly Seyrafi greatly increased his price target for Ambarella following last week’s earnings report. He moved his target from $60 to $80 per share and maintained his Outperform rating.

The company greatly beat estimates for non-GAAP earnings as a result of a better-than expected gross margin. The gross margin came in at 67.1% or 3.6 percentage points higher than the high end of guidance. Operating expenditures were lower than management has expected, coming in at $23 million, compared to their outlook of $24.5 million to $26 million.

The one area in which Ambarella saw a significant revenue decline was wearable sports cameras, which was the result of a sharp drop in sales to GoPro. However, the company expects the segment to show strong growth in the third fiscal quarter, signaling a return to growth for GoPro as the company is expected to release the Hero 5 camera in time for the holiday shopping season. Ambarella also expects the home and IP security markets to also show strong growth in the third quarter, and Seyrafi expects the strong growth to continue in the fourth quarter.

Supply constraints for Sony sensors

Seyrafi notes that the shortage of Sony sensors hit Ambarella hard during the second quarter, which was expected. He adds that the shortage is estimated to resulted in the loss or delay of between $2 million and $4 million in revenue during the quarter. After adjusting for the shortage, the total revenue decline would have been about 19% year over year rather than the 23% that was reported.

He expects the Sony shortage to cause lingering problems for Ambarella in the third quarter but believes the supply shortage will be resolved by the quarter’s end.

DB also raises Ambarella price target

Deutsche Bank analyst Ross Seymore also raised his price target for the company’s stock, pushing it to $68 from $47 per share, although he maintained his Hold rating. He said in his post-earnings report that the recovery from the Japan earthquake is actually going faster than expected and noted that the continued expectation for a rebound in GoPro sales is great news. Also he likes the multiple growth drivers Ambarella enjoys, including drones, home security and China in addition to GoPro.

Despite the gross margin strength in the second quarter, he expects pressure in the future due to the future product mix. He said the mix of home security products and China sales could pressure margins, which could in turn limit upside to Ambarella’s share price. He continues to rate the stock as a Hold because of the company’s volatility and uncertainty about its gross margins going forward.

Oppenheimer analyst Andrew Uerkwitz also maintains the equivalent of a Hold rating on the stock, but his concerns center on uncertainty in action and professional IP cameras.

Shares of Ambarella rose by as much as 3.33% to $69.22 during regular trading hours on Tuesday. Shares of GoPro rose by as much as 3.61% to $14.64 as investors became encouraged about the company’s future based on Ambarella management’s commentary about the action camera market.