Photographer: Patrick T. Fallon/Bloomberg

Mobileye in Short Sale Tug-of-War as Citigroup Says Time to Buy

Updated on
  • Bearish bets on Mobileye stock reached record high this month
  • Company may benefit from new U.S. auto safety standards

Shares of Mobileye NV are locked in a tug-of-war between short sellers and the company’s Wall Street backers.

Bets against the maker of car safety software climbed to a record 15 percent of shares outstanding on Sept. 17, while the stock has lost 14 percent this month, heading for the worst monthly performance in almost a year. They climbed 5.4 percent last week, buoyed by an agreement among automakers and U.S. regulators to make automatic emergency breaking a standard feature on new cars.

Mobileye, whose customers include Tesla Motors Inc. and General Motors Co., has become a target for short sellers after more than doubling in value since its $1 billion initial public offering in July 2014. Citron Research, the firm run by short seller Andrew Left, said in a Sept. 9 report that Mobileye’s valuation is too high and no barriers to entry exist to fend off competitors. That prompted analysts at firms like Citigroup Inc., Morgan Stanley and Raymond James Financial Inc. to defend the stock.

“It’s such an easy target,” Rhett Hunter, an analyst in Baltimore with T. Rowe Price Group Inc., which manages about $750 billion in assets, said by phone. “The valuation on short-term estimates is generous, but confidence in the long-term trajectory is still intact.”

Hunter said he has been adding shares of Mobileye since the stock dropped.

The shares sell for 73 times projected 12-month earnings, compared with an average of 20 among 11 global auto suppliers. Profit is forecast to more than double this year to $107 million, on revenue of $238 million, according to the average of 10 analysts surveyed by Bloomberg.

Founded in Jerusalem 15 years ago by Hebrew University professor Amnon Shashua and Ziv Aviram, Mobileye makes a chip and a system that alert drivers to pedestrians and unintended lane departures. Its chips and software will help make driverless cars a reality as soon as 2021, Aviram said in July.

Citron said in its report that Mobileye shares should be worth $25 in the near term and $10 in the long term, because “there are no barriers to entry for competitors other than legitimate R&D, and they do not have superior technology.”

The stock also fell after Freescale Semiconductor Ltd., a supplier of chips for advanced driver assistance systems, said Sept. 10 it was acquiring CogniVue Corporation, which makes image processing chip technology for the auto industry.

Yonah Lloyd, a spokesman for Mobileye, declined to comment.

Wall Street banks are more positive. Twelve out of 14 analysts covering Mobileye recommend buying the shares, which are forecast to rise 51 percent over the next 12 months, according to data compiled by Bloomberg.

Citigroup, which has a $77 price target for Mobileye, pointed out that it’s now working with 13 auto suppliers, up from five at the time it went public. Most analysts expect the company’s 80 to 90 percent rate of contract wins to erode somewhat over time, but not enough to dictate a lower share price.

“The problem with the bear case is that recent data points suggest the opposite of the bear narrative around competitors having caught up,” Citigroup analysts led by Itay Michaeli wrote in a Sept. 14 report. “If there were few barriers to entry and no superior technology, then we’re not sure what competing industry players have spent the last 3 years doing.”

U.S. regulators said last week that 10 automakers have committed to including automatic electronic braking systems in future car models. The guidelines will speed implementation of autonomous driving systems across the industry, and shorten the time competitors have to catch up to Mobileye’s technology, Raymond James analyst Tavis McCourt wrote in a Sept. 14 note.

Mobileye shares are getting beat up because stock markets are choppy and valuations are high, but it’s not a reason to dump the stock, said Hunter of T. Rowe Price.

“Two things that really matter for this company are fundamentals and sentiment,” he said. “The fundamentals right now are very strong, but it’s not surprising for sentiment to bounce around.”