Mobileye Global Inc's ‘Buy’ recommendation from UBS remained intact although its price target was lowered after the self-driving technology developer guided investors for a sharp fall in first-quarter revenue as its customers cope with excess inventory.
Due to the lower outlook, UBS analysts have cut their price target to $35 from $48, saying while the destocking will weigh on the company’s 2024 performance there remains mid-term opportunity from its Supervision driver-assist system.
“Some patience required as stock may be in the proverbial penalty box,” the analysts wrote in a client note.
“But with [the] stock down –24.5% vs. S&P500 -0.3%, we see an attractive buying opportunity for investors with a 2.3x upside/downside skew.”
As well as guiding investors for a roughly 50% decline in 1Q revenue from 1Q 2023, the company also guided for full-year 2024 revenue of between $1.83 billion to $1.96 billion, far short of the $2.56 billion expected by Wall Street.
The analysts noted that Mobileye indicated there are six to seven million advanced driver-assistance systems (ADAS) chips that need to be destocked by Tier 1 customers
“This does mean we and the market over-estimated the base ADAS business, but it doesn't change our view that the stock, and multiple, is dependent on advanced ADAS solutions (SuperVision, Chauffer, etc),” they added.
While UBS’ estimates for SuperVision are below consensus, it said the market is pricing in an even lower scenario.
“As a Tier 2, MBLY knows what programs they are on, but when they ship to the Tier 1s, they can’t audit what vehicle it ends up on,” the analysts said.
“When ADAS penetration curve was much steeper, stocking events were likely masked by penetration growth.”
With base ADAS more highly penetrated, especially in developed countries, the analysts said Mobileye may be more prone to cyclical restock/destocks.
“We don’t believe this is an EV pushout issue because the destocking relates to base ADAS, not SuperVision,” they added.
While the analysts do not “hold out hope” for a SuperVision customer announcement at CTA’s CES consumer electronics trade show in Las Vegas this week, they said they expect an update from Mobileye on commercial tractions and its tech roadmap.
“That said, announcing new SuperVision wins in the next 2 quarters is critical, given time from announcement to SOP (~1 year for Chinese OEMs, ~2 years for others),” they wrote.
“We believe this will occur. If it does not, [the] market will continue to push out SuperVision volume further.”