Goldman Sachs: Mobileye Has 'Game-Changing Technology'

Goldman Sachs upgraded Mobileye NV (NYSE: MBLY) Thursday from Neutral to Buy and maintained a $50 price target.

Analysts, led by Alexander Duval, noted that the stock had underperformed recently, however, the analysts believed this was due to technical factors and that fundamentals remained strong with a 25 percent return potential for the stock.

Mobileye "offers exposure to the structurally growing assisted driving (ADAS) market, strong revenue/EPS growth, 49 percent/34 percent EBITDA/FCF margins in 2015E and a credible autonomous driving roadmap," according to Duval.

The analysts expected the market for front-facing, camera-based Advanced Driver Assistance Systems to grow at a 37 percent CAGR from 2014 to 2020.

The firm's forecasts indicated ADAS penetration in vehicles would reach approximately 50 percent in Europe by 2020, with other regions to follow.

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"Mobileye's monocular camera solution is superior to other technological approaches to ADAS, especially for functions such as pedestrian automatic emergency braking (Pedestrian AEB), which our research suggests are harder to deliver with certain non-camera-based technologies (such as radar)," Duval wrote.

In addition to developing the technology, the company had secured 244 car platforms, up from 237 at its IPO, and the analysts estimated that the OEM segment would remain the largest. Potential was also seen for 1 billion vehicles to be retrofitted globally and the possibility for government incentives to promote ADAS retrofits.

The analysts also expected semi-autonomous driving to contribute greater than "30 percent of incremental OEM revenue growth between 2014 and 2020, as Mobileye has design wins from two OEMs to launch hands-free capable driving at highway speeds (and in congested traffic in 2016), and is in development programs with six further OEMs for potential launch in 2017/18."

Considering the company's sales and technology pipelines, Duval saw "an attractive entry point into the stock at current levels given rapid EPS growth and attractive EBITDA/FCF margins vs. disruptive technology peers globally trading on similar P/E multiples."

Duval concluded that "Mobileye has significant strategic importance as a potentially game-changing technology provider of advanced and fully autonomous driving technology in the longer term."

Mobileye NV traded at $41.44 in the after-hours session, up 2.57 percent.