Analysts put the brakes on Mobileye

Prof. Amnon Shashua and Ziv Aviram

The share price of the Israeli driving systems company has lost 28% of its value in less than a week.

The market cap of Mobileye(NYSE: MBLY) dropped by $2.4 billion in six days of trading, with the share price plunging 28%. The negative return on the share since the beginning of the year has already reached 33% (a loss of $3 billion in market cap), and those who invested in the share at its peak value last August have lost 56%. At the same time, the return on the share since the company's July 2014 IPO is a positive 13.5%, and its current market cap is $6.2 billion.

Mobileye has developed a technological system that issues warnings about road hazards during driving. The system contains chips, software, and cameras. The company, founded by chairman Amnon Shashua, Isaac Litman, and CEO Ziv Aviram, is also developing systems that will make it possible to produce a driver-less car.

"Longs warned!"

The recent plummet in the Mobileye's share price is related, among other things, to this quote from Citron Research, a research company that looks for shares it believes to be overvalued, and then publishes negative recommendations for them. Morgan Stanley, whose attitude towards the share is positive, also contributed to the negative trend by sharply cutting its target price.

In its recommendation published last week, analyst Adam Jonas cut his target price by 29%, from $80 to $57. The current target price is still substantially higher than the current market price (especially following the recent slide), reflecting a premium of over 100%. Morgan Stanley retained its "Market outperform" recommendation for the Mobileye share.

"Through 2018, we see Mobileye on a path to quadruple earnings, and grow into its valuation on advanced ADAS penetration." Jonas wrote. "Longer term, we see large tech players aiming for fully autonomous transport adding potential risks to the ultimate outcomes of Mobileye's market share, margins, and terminal growth rate."

Jonas writes that lowering the target price is solely a result of the long-term forecasts. "We believe that Mobileye has very high near-term barriers (that will cause problems for potential competitors, S.H.-B.) in the growth of vision-based ADAS systems in human driven applications commercialized by conventional auto firms. Longer term, we believe there is far greater room for debate as to what are Mobileye's barriers to entry in a fully-autonomous ecosystem commercialized by large tech hardware and software firms," he believes.

Citron has had a negative recommendation for Mobileye for several months, and wrote last September, when the share price was $48 (the current share price is $28.40), "There is nothing in the past or present financials, business performance or realistic future prospects of Mobileye that would get it within miles of justifying its current $12 billion market cap (where the Mobileye share was traded at the time, S.H.-B.)… Citron expects Mobileye to trade down to $25 in the short term and single digits within the next 24 months." In December, Citron called the Mobileye share "the short of the year" for 2016.

In a Twitter posting yesterday, Citron stated that even $10 was too expensive for Mobileye, writing, "Longs warned!"

Published by Globes [online], Israel business news - www.globes-online.com - on January 20, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Prof. Amnon Shashua and Ziv Aviram
Prof. Amnon Shashua and Ziv Aviram
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