Mobileye NV (NYSE:MBLY) shares surged on Tuesday as investors praised the company’s strong earnings report and increased guidance. However, it seems that they may have realized now that when the company boosted its full-year guidance, it did so by less than the size of the third quarter beat. In other words, Mobileye appears to have implied that its fourth quarter could be a little weaker than it was previously expecting.
Mobileye reveals business wins
JPMorgan analyst Samik Chatterjee, who has a Neutral rating and $50 price target on the company’s stock, noted in a report dated Nov. 16 that Mobileye revealed several new business wins along with its third quarter report. This continues to support the company’s dominant position within the autonomous driving market.
Management revealed that they had signed a deal for a new Level 4 autonomous program with a non-traditional automaker for a vehicle that’s expected to launch later this decade. Dougherty and Company analyst Charles Anderson suggests that this new customer could be “one of the many China EV startups that have emerged.” This was the fourth autonomous driving win for the company since it revealed the programs with BMW, Delphi and an unnamed automaker. Anderson also suggests that “someone like Nissan” could be the “high volume” traditional automaker that signed with Mobileye, although of course this is pure speculation.
Mobileye also said it has made progress on the Road Experience Management monetization agreement with Volkswagen, but they also said that they wouldn’t reveal any financial details when an agreement is reached.
Misunderstanding on REMs?
RBC Capital Markets analyst Joseph Spak has an Outperform rating and $51 price target on Mobileye, and he said in his Nov. 15 report that investors are misinterpreting the messages about the REM, which was widely seen as the next big catalyst for the company’s shares. When referencing the REM deal, the company said that the level of disclosure about the deal is “still to be determined,” and Spak believes this was seen as the company “‘walking back’ REM or the monetization opportunities.” However, he doesn’t believe that this was the case.
He notes that other parties are involved in the REM deal, so it makes sense that the company can’t say much. Also he believes the company must show a path or opportunity from REM that is underappreciated by the Street but that this doesn’t necessarily mean that a hard financial target must be given. He stated in his report:
“We believe that if MBLY successfully gets many OEMs under agreement and is able to get them to share the data to create a global roadbook, then a) MBLY will embed themselves firmly (with high switching costs) in the future of mobility and b) the market value of that data asset could be significant and bear many financial opportunities.”
Still solid fundamentals
Deutsche Bank analysts found the pace of new business wins “very encouraging” during the third quarter. They said among the included wins were Hyundai, Scania, a Taiwanese OEM, a non-traditional OEM and another high volume Asian OEM. You may recall that Mobileye lost Tesla as a customer earlier this year, although it seems the company may be glad to have broken up with the EV maker.
Additionally, BlueStar Global Investors analyst Joshua Kaplan believes investors are paying for less revenue growth than what they’re actually getting at Mobileye.
“Growth stocks are typically valued based on a multiple of revenue and revenue growth,” he told ValueWalk in an email. “When they are also generating positive cash flow it is sort of a Goldilocks scenario (barring any major guide-down or major technological breakthroughs by competitors). Mobileye’s revenue in 2016 YTD has grown at 50% year-over-year while the stock is trading at under 30 times revenue meaning investors are paying for less revenue growth than they are getting. Stocks are ‘fairly valued’ when the ratio of a price multiple to growth in the underlying fundamental data is 1:1. In MBLY’s case the Price-to-revenue: revenue growth ratio is more like 0.6.”
Despite the solid earnings report and bullish analyst reports, shares of Mobileye slumped during regular trading hours on Wednesday, declining by as much as 5.25% to $37.57.