Mobileye Outlook Cut At Morgan Stanley, But Firm Still Sees 40% Upside

Morgan Stanley’s Adam Jones maintained an Overweight rating for Mobileye NV (NYSE: MBLY), while reducing the price target from $57 to $48. While the bear case remains unchanged at $20, the bull case has been reduced from $90 to $80.

The downward revision in valuation reflects “a slower ramp in the near to medium term, higher R&D expense in the out years and lower exit margin reflecting likely sustainability of higher R&D expenses,” analyst Adam Jones wrote.

Mobileye was “in the early innings of a long penetration story,” which makes the company more insulated from macro/credit risk than its automotive supply chain peers, Jones commented. He added, however, that the company was not completely protected from any weakening in global volumes.

Jones mentioned that the R&D investment expectations needed to be raised due to the Road Experience Management, or REM, deployment in the near to medium term as well as the ramp up in competition spending.

Change In Estimates

The EPS estimate for 2016 has been reduced from $0.76 to $0.70 to better reflect the company’s guidance of $0.68-$0.69. The revenue estimate for 2016 has been reduced by 6 percent to $339mm, which is still marginally higher than the guidance midpoint of $336-$400 mm.