Mobileye shares fell on Thursday after recovering from a sharp fall on Wednesday. Investors may have been shaken by a downgrade from an analyst who is well-known for his bullish stance on Tesla, a company Mobileye broke ties with last year. Meanwhile, chart technicals may point to a bullish set-up in Mobileye stock.
Mobileye stock downgraded by Morgan Stanley
Morgan Stanley analyst Adam Jonas downgraded the driver assistance component supplier in a research note on February 1. He cut his rating to Equal-weight and trimmed his price target from $48 to $44 per share, saying that he’s concerned about higher research and development expenses, a lower market share, and an increase in competition.
The analyst emphasized that he’s a big believer in automated driver assistance systems, even over fully autonomous vehicles in the near term. However, he thinks a lot of the growth is being driven by easier affordability, which is weighing on margins. He expects 100% penetration for ADAS in Europe by 2021, 100% penetration in Japan and the U.S. the following years, and 100% penetration in China by 2025. As a result, he sees a bigger market opportunity but lower margins, which he feels provides a greater rationale for automakers to reduce their dependence on one supplier.
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Jonas added that while Mobileye has struck some important deals with Intel, BMW and HERE, it will likely take quite a lot of human capital and research and development capacity to “see such projects through.” He also noted that crowd-sourced data sharing is a sensitive topic among automakers, so he sees some pain points here and potentially uneasy arrangements
Mobileye forms cup-with-handle pattern
According to Investor’s Business Daily, Mobileye stock is approaching a buy point, as it has formed a “cup-with-handle base with an RS line that is still well off 52-week highs.”
Interestingly, short interest in the stock surged during the first half of January, rising from about 25.1 million shares at the end of December to about 30.55 million shares.
Shares of Mobileye closed down 0.49% at $42.74 on Thursday after touching a low of $42.27.