This is another stock I like long term but only trade here. Too much volatility and too highly priced. Typical approach is to sell naked put out of the money after a big sell off. So far they have expired out of the money. Last time when the $35 strike expired, I bought at $36 and am now long. Sold a Mar27 covered call with $40 strike. I'll let it get assigned, rinse and try to repeat with another naked put sale.
At some point I'll post more about why I like stock long term. Fits well into connected world theme which I've covered with $TSYS
Zacks' Bull Of The Day: Mobileye Mar. 12, 2015 11:31 AM ET | 1 comment | About: Mobileye (MBLY) By Kevin Cook
Mobileye (NYSE:MBLY), the $8 billion global leader in camera-based Advanced Driver Assistance Systems (ADAS), has produced enough good news in March to convince some investors and analysts that the stock price fall from $60 may have reversed before it has a chance to join the "below the IPO" club like Alibaba (NYSE:BABA).
With an enormous share lock-up expiring next week for BABA, it's no wonder the stock is flirting with new lifetime lows. And MBLY almost suffered a similar fate recently as it was expected the company would conduct a secondary offering, as it filed for in January.
But several events conspired to help the company keep those additional shares "on the shelf." First, a strong fourth quarter report on February 26 helped clarify the company's strategy and management execution. Q4 revenue of $39.7 million and non-GAAP net income of $13.3 million both beat consensus expectations. The company also generated $15.4 million in free cash flow.
For the full-year 2014, total revenue of $143.6 million was an increase of 77% year-over-year and non-GAAP net income of $46.8 million equaled growth of 41.5% year-over-year. And full-year 2015 guidance was solid with revenues expected to be $217-218 million vs. the $215 million consensus.
New Markets and Partners
The buzz among Wall Street analysts after this report and the subsequent conference call was very enthusiastic. It's not that profits are going to be pouring through to bring down the lofty valuation. Instead, analysts are looking at Mobileye's execution of deals and partnerships with major automobile OEMs and top car brands.
Mobileye technology is available in over 150 car models from 18 car manufacturers, including GM, Ford, Honda, and BMW. Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016. And the company is already making inroads into China with new business there expected to contribute to revenues this year.
Following the report, analysts began raising EPS projections and the stock became a Zacks #2 Rank on March 4 as estimates were bumped 25% and 15% for this year and next, respectively.
EyeQ: The Total Integrated Solution
Mobileye develops software and semiconductor technology algorithms it calls the EyeQ system-on-a-chip. These systems perform detailed interpretations of the visual field to anticipate possible collisions with other vehicles, pedestrians, and other objects.
Also on March 4, the company introduced its 4th generation system-on-chip, the EyeQ4. And it revealed that it has already won a production contract with a global premium European car manufacturer for the technology to launch in 2018.
Relative to the company's EyeQ3 chip, the EyeQ4 is faster and can support trifocal camera configurations for use in semi-autonomous driving and other high-end functions in a more compact package. The company also announced that it will launch a scaled-down version of the EyeQ4 chip which will be less expensive than the high capability version.
The 2018 launch seems far away but it's consistent with what some top analysts were expecting. And the scalability of the technology is welcome too as it will provide automobile OEMs flexibility to add features at the best possible cost.
Better Than a Secondary
While investors fretted last month about the coming secondary, MBLY shares declined over 15% to under $33 by early March. But one large and early investor increased their stake by over 80%. Goldman Sachs was a lead underwriter for the IPO last August and they bought 13.3 million more shares in February, as revealed by an SEC 13G filing on the 17th.
The buys brought their stake to 29.6 million shares, or 13.9% of the company. This show of faith by Goldman was enough to restore faith for some investors because their buys occurred on average between $36 and $37.
Analysts in Motion
But analysts don't respond to institutional buying. They look at management, balance sheets, and growth prospects. And the overwhelming response to the Mobileye growth story this month was very positive. According to AnalystRatings.net and other sources, here were some of the ratings and/or price target moves by major research houses...
3/5/2015 RBC Capital: Buy $55 3/5/2015 Barclays: Buy $66 3/2/2015 Wells Fargo: Buy $52 2/27/2015 Raymond James: Outperform $49 On February 5, RBC Capital Markets analysts said MBLY might enjoy "at least 78% compound annual growth rates in camera technology for auto-braking systems over the next 5 years." The investment bank notes the Israeli company has a unique, single-camera technology that's less expensive and more effective than competing technologies and already has a big partner in Delphi.
After earnings in late February, RBC analyst Joe Spak said he thinks there is more potential upside for Mobileye in 2015 as auto customers jump on its lower-cost sensor solutions that are used in autonomous and semi-autonomous driving options. Spak says the firm is expected to generate revenue growth of 53% this year, but he's expecting a better outcome.
Also last week, analysts at Citigroup put out a research note maintaining their Buy rating and $64 price target with the view that Mobileye's "hyper growth" will continue beyond 2017. The ramp of tri-focal camera technology in 2018 and beyond should support growth of at least 50% annually "at the center of the most-powerful automotive megatrend in history," said the analysts.
What About the Competition?
Another theme that ran through much analyst commentary last week was that Mobileye was leaving the competition behind with its integrated solutions and key customer/partner relationships. This week was no exception.
On March 11, Mobileye announced a new partnership with Valeo, a key ADAS technology company. The two companies joined forces to combine Mobileye's EyeQ family of microprocessors and computer vision algorithms with Valeo's strong driving assistance sensor portfolio.
Under the cooperation agreement, Valeo will design and industrialize a range of front-facing camera solutions and sensor fusion products using Mobileye's EyeQ technologies. According to StreetInsider.com, Wells Fargo analyst Richard M. Kwas believes "it may take a few years for the product to become commercially available. The deal is relevant because it's a new relationship for Mobileye, and Valeo is a global leader in several areas, including driving assistance."
Kwas also noted that competitor announcements have not mentioned OEM/Tier 1 relationships, suggesting Mobileye's momentum continues to build.
And that should explain why the stock is finding its footing this month above its IPO price of $36.
Goldman has upgraded Mobileye (NYSE:MBLY) to Buy after the close. Shares have jumped to $42.00 in response.The gains come a day after Mobileye rallied in the wake of its partnership with French automotive system supplier Valeo. Wells Fargo has praised the deal, albeit while cautioning it may take a few years for joint Mobileye/Valeo solutions to become commercially available.
Emergency braking pact seen adding momentum for Mobileye Numerous analysts issued bullish notes on advanced driver assistance systems technology maker Mobileye (MBLY) this morning after ten carmakers committed last week to make automatic emergency braking a standard feature on their vehicles. Not everyone is bullish on the chipmaker, however, as a well-known short seller recently cautioned that it expects the shares to fall by roughly 50% in the near-term. DOT ANNOUNCEMENT: Ten vehicle makers -- Audi, BMW (BAMXF), Ford (F), General Motors (GM), Mazda (MZDAF), Mercedes Benz (DDAIF), Tesla (TSLA), Toyota (TM), Volkswagen (VLKAY) and Volvo (VOLVY) -- committed to making automatic emergency braking, or AEB, a standard feature on all new vehicles built, the U.S. Department of Transportation announced on Friday. "Several studies, including a recent report from IIHS, show that AEB technology can reduce insurance injury claims by as much as 35%," said the DOT, which noted that the 10 carmakers committing to across-the-board AEB represented 57% of U.S. light-duty vehicle sales in 2014. BULLISH TAKE: Deutsche Bank analyst Rod Lache said Friday's announcement from the DOT "significantly exceeded" his expectations. Suppliers now expect 80%-90% penetration within five years, said Lache, who believes Mobileye should "benefit disproportionately" as its technology is viewed as the lowest cost while still being high in accuracy and functionality. He believes the financial implications are "significant" for Mobileye and reiterated a Buy rating on the stock with a $72 price target. Meanwhile, Morgan Stanley's Ravi Shanker said AEB as a standard feature can positively impact Mobileye's product mix and average selling price. Shanker, who also thinks that carmakers' accelerating use of ADAS will give Mobileye's competitors less time to catch up, kept an Overweight rating and $80 target on Mobileye shares. SHORT SELLER: Significantly more bearish on Mobileye is short-selling blog Citron Research, which recently set a $25 "short-term" target for its shares with a long term target of below $10. "Mobileye is a pioneer in ADAS, [but] they did not invent nor have any broad proprietary claim over ADAS functionalities...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," Citron wrote in a report posted to its website on September 9. In a note issued this morning, Citi analyst Itay Michaeli said he "strongly" disagrees with what he called "new bearish articles" on the company and recommended using last week's pullback in shares as a buying opportunity. After hosting the company's CEO at its tech conference, the analyst is "increasingly bullish" on Mobileye. He has a Buy rating on the stock with a $77 price target. PRICE ACTION: Mobileye shares, which rose a bit over 3% on Friday, added another 3.8% to $47.45 in trading this morning. Even with the bounce in the last two sessions, the stock has declined about 20.5% in the last month.
The firm’s narrow moat is evident in pricing power that generates ROICs in excess of 40%.
By Richard Hilgert | 12-23-16
We think Mobileye (MBLY) has positioned itself as the provider of a key technology enabler for vehicle systems that will be required as standard equipment in order for automakers’ vehicles to receive coveted 4- and 5-star government crash test ratings. We expect the adoption of active safety features and advanced driver-assistance systems by global automobile makers will support average annual revenue growth for Mobileye of slightly more than 20% for the next 10 years. The firm’s asset-light business model results in wide margins and high returns on invested capital.
About the Author Richard Hilgert is a senior equity analyst for Morningstar.Contact Author | Meet other investing specialists
Given its higher scalability, Mobileye more closely resembles a software business than an auto-parts vendor. Its high revenue growth does not require an investment in bricks and mortar or tooling and equipment like a traditional capital-intensive auto-parts supplier. Mobileye designs its own microprocessors and develops proprietary algorithms, but outsources all of its manufacturing, including microprocessor fabrication.
Without a high fixed-cost base, profitability is high as research and development for chips and software plus selling, marketing, general, and administrative costs are the company’s only major operating expenses. In 2015, this cost structure enabled Mobileye to generate a gross margin slightly in excess of 75%, EBITDA margin of approximately 52%, and an adjusted ROIC near 43%. Because of the substantial growth we forecast, we think that scalability will drive the EBITDA margin to an average of 62% over our 10-year Stage I forecast.
New-car assessment programs are used by governments around the world to provide an independent vehicle safety rating. Legislators, especially in the United States and in Europe, have set guidelines that will progressively require the addition of active safety and autonomous driving features as standard equipment through the end of this decade. As a result, new model introductions over the next several years should incorporate Mobileye technology, which enables the safety features being driven by regulators.
Intellectual Property and Customer Switching Costs Are Advantages
Mobileye’s narrow economic moat is derived from the intangible asset of its intellectual property and high customer switching costs. The company’s sticky, market-leading share results from its long-term highly integrated customer relationships, a voluminous dataset built over 15 years of research, and the time and investment required to switch to a competing technology. In the past eight years, the company has won 85% of the contracts for a prospective customer requested a quote. Steep switching costs result from incremental engineering costs, preproduction validation, and higher prices for competing technologies.
Pricing power exists for suppliers like Mobileye, which have generated an innovative technology that has substantially changed the market. Because of the company’s highly scalable business model in which it outsources chip production, pricing power has been especially noticeable in the past three years as revenue has grown disproportionately much faster than costs. As a result, we forecast Mobileye will generate sustainable excess returns on invested capital for more than 10 years. However, due to the highly competitive automotive industry, the potential for competitors to meaningfully encroach on the market after 10 years, and Mobileye’s heavy reliance on camera-based vision technology, we cannot say that it is more likely than not that the company will maintain economic profits beyond 20 years.
Pricing power is one of the key attributes of an economic moat. Generally, automotive-parts suppliers are contractually obligated to reduce the price of their products annually and must use lean manufacturing practices just to prevent margin erosion. Even so, a continuous flow of technical innovation has enabled most of the auto industry’s suppliers to maintain moderate pricing power in this highly competitive sector.
Mobileye is highly specialized in vision-based technology, which could limit the flow of future innovation relative to other suppliers with broader product portfolios, putting at risk the pricing power of their intellectual property. However, with its single-camera (monocular) technology, the company has a substantial lead against the competition. Competitors have developed dual-camera, stereo-vision systems that cost more, consume more power, use more windshield space, have less range, have more difficulty distinguishing objects from background, and provide less effective warning for active safety and advanced driver-assistance systems. While some competitors have initiated monocular system development, it will be several years until they amass the dataset already in use at Mobileye and another several years before their systems could appear on a production model.
Mobileye has 15 years of research and development behind its vision technology. In the process, the company has collected a massive dataset from millions of miles of on-road testing. Data was sourced from road experiences in 40 countries, in multiple scenarios, around the clock, and on hundreds of vehicle models. This deep and wide dataset trains and optimizes the company’s proprietary algorithms such that safety functions are fully validated while false positive readings (for example, one that would cause erroneous deployment of automated emergency braking) are avoided.
In our view, Mobileye’s technology head-start and dataset result in a service that will be difficult for competitors to replicate. One of the eventual steps necessary for complete self-driving vehicles will be the implementation of vehicle-to-vehicle and vehicle-to-infrastructure communication. This technology will allow vehicles to become part of an ad hoc computer network that--when combined with GPS, radar, lidar, and sonar sensors in each vehicle--provides exact relative vehicle positioning. In this context, Mobileye’s technology adds incomparable detail to the ad hoc network where real-time vision and data collection create instantaneous roadmaps that give autonomous vehicles greater predictive capabilities, enabling efficient traffic flow in congested metropolitan areas.
Additional evidence of an economic moat lies in the high costs that customers would have to pay to switch to one of Mobileye’s competitors, especially during the production phase of a vehicle program’s lifecycle. Automakers require suppliers’ technical expertise very early in the development process, especially when engineers are working on critical areas of the vehicle such as active safety and advanced driver-assistance systems for which Mobileye provides vision technology. Total development time for any given passenger vehicle can take 18 months to three years. During this period, suppliers’ personnel work on teams alongside the automaker customer and, in many instances, are located at customers’ development facilities. Programs have total life spans that are generally 5-10 years. As long as a supplier is in good standing with its original-equipment manufacturer customer at the end of the vehicle program, the supplier is usually considered to be incumbent on the successor program.
It is rare that an OEM decides to drop a supplier of a critical component or system, and if it occurs, it should be viewed by investors as indicative of a much larger problem with the supplier than might readily be apparent. To switch to one of Mobileye’s competitors midprogram, an automaker might incur such costs as initial development engineering, sourcing new computer chips, preproduction validation, the higher cost of a shorter production run for the successor supplier, and the higher price of competing vision-based technologies. Total costs for switching to another supplier of this technology could run into the hundreds of millions of dollars.
Dependence on Auto Industry Brings Risk
Even though Mobileye’s business model has low operating leverage, high scalability, relatively expansive margins, and impressive returns, the company still operates in the global automotive sector. The automotive industry suffers from growing overcapacity, capital-intense operations, fierce competition, and high cyclicality. In our opinion, Mobileye’s head-start on the competition, long lead times for vehicle product development, lengthy product lifecycles, and the drawn-out growth curve of active safety and advanced driver-assistance technology penetration provide the firm with a healthy buffer to the industry’s vagaries. However, at some point, given the nature of the auto sector, Mobileye’s pricing could come under pressure once the technologies reach a mature level of penetration. We see this as only a very minor risk in the near term.
Although Mobileye designs and develops its EyeQ microprocessor technology in house, it depends on ST Microelectronics for chip fabrication. The microprocessors come from a single plant in France. Given the reputation of French labor, disruptions could be an issue in the future, although we see no immediate risk of a shutdown. Natural disaster, equipment failure, and/or logistical issues are also risks to Mobileye’s single-source supply of microprocessors. While we do not believe the company will insource chip fabrication, we think that at some point, the fast-growing pace of Mobileye’s sales volume will warrant serious consideration for a second microprocessor source.
Mobileye’s headquarters and research and development center are in Jerusalem. Even though Israel has entered into several peace accords, unrest and terrorist activity plague the country and the region. While the company does not have production facilities in Israel, it faces the risk that hostilities could have a material impact on administrative offices and R&D operations.
We think Mobileye is in vigorous financial health. The only criticism would be that the company has no financial leverage, eliminating the tax benefit of interest expense and increasing the weighted average cost of capital being solely equity funded. However, we struggle to see a potential use of any debt capital raised by the company.
With substantial growth for the foreseeable future, one might think that debt capital may be required. However, the scalability of the Mobileye’s business model dramatically reduces the need for capital investment to meet future sales volume growth. Mobileye generates substantial operating cash flow that is adequate to meet the needs of the growing organization. Cash generation is substantial enough in our discounted cash flow model that not only are operations adequately funded, but we have to assume substantial share repurchases and initiation of a dividend to keep balance sheet cash and equivalents in check through the second half of our 10-year Stage I forecast.
We cannot completely rule out merger and acquisition activity, but we do not include acquisitions in our forecast 20% annualized revenue growth rate. Mobileye operates in a very specific space within the automotive sector, which limits the potential for bolt-on acquisitions. Any M&A that might develop may be used to quickly increase engineering staff, expand information technology staff, or enter an adjacent market like commercial or off-highway vision systems but would probably not include any manufacturing capability.
Under: Been on the sidelines for a bit holding (building) cash. Now that "BIGLEY" has rolled out the tax plan its time to jump in.
Dec 21, 2017 19:06:02 GMT -6
martyc: Looks like you are buying Msft again!
Dec 15, 2017 11:23:29 GMT -6
martyc: The news that Trump called Rupert to congratulate him sure seems to indicate that this is heading to approval
Dec 15, 2017 11:22:23 GMT -6
Under: DIS finally getting some traction.?
Dec 14, 2017 17:08:45 GMT -6
martyc: I took an entry level position in DIS. Will add eventually to overweight when it becomes clearer that the deal will go thru. Can't believe how well positioned they will be. 60% Hulu. 20% of content watched on NFLX they can pull. More in thread
Dec 14, 2017 11:05:16 GMT -6
Under: Great posts on $DIS
Dec 13, 2017 17:50:49 GMT -6
Under: $ROKU Citron on a war path.
Nov 28, 2017 15:11:20 GMT -6
Under: $HAS takeover bid for $MAT?
Nov 10, 2017 16:16:07 GMT -6
martyc: Not looking like the market will provide any discounted opp for SGMO. Call was just too professional and all signs indicate they are on a great path for commercialization. Happy with core but wish I had some trading shs
Nov 10, 2017 9:04:05 GMT -6
martyc: For anyone looking to find an entry point into SGMO, I'm almost hoping is sells off in next few days so I can add more. They are really clicking but the fact they haven't signed new deals might cause some to exit. Watching as I have room for trading shs
Nov 9, 2017 18:28:09 GMT -6
martyc: Been an interesting ride so far. I figured the Bears would be about this good but hoped the O wouldn't look so lame. Another building yr but still possible to get to 8-8 IMO
Nov 9, 2017 18:26:08 GMT -6
Under: whats up with your Bears this year Marty?
Nov 9, 2017 17:35:25 GMT -6
martyc: Hope you were long ROKU. I wanted to see Q first so missed out
Nov 9, 2017 7:08:53 GMT -6