Analysts Cautious on Apple Inc. (AAPL) Despite iPhone X Upside Expectations, Downgrade Mobileye NV (MBLY) Following M&A Deal


Ahead of the 10th anniversary edition of the Apple Inc. (NASDAQ:AAPL) iPhone model expected this fall and on back of Mobileye NV (NYSE:MBLY) and Intel Corporation (NASDAQ:INTC) making waves in the spectrum of advanced driver assistance systems (ADAS) and fully autonomous vehicles, analysts are chiming in from Nomura and Needham with research reports. Whereas one analyst remains on the long-term Apple train, he underscores several concerns that the new iPhone ramp presents challenges to the giant. Meanwhile, one of Wall Street’s best performing analysts takes a swivel to the sidelines on Mobileye following the news of the acquisition. Let’s dive in:

Apple’s iPhone 8 Cycle is a Complicated Feat

Nomura analyst Jeff Kvaal does anticipate upside in Apple’s future, but following his Asia tech tour also believes the ramp will come with its fair share of delays and winding turns. Nonetheless, particular in terms of high expectations for the tech giant to beat fiscal 2018 iPhone expectations of 255 million units (with consensus calling for 240 million iPhone 8 units, the analyst reiterates a Buy rating on shares of AAPL with a $135 price target.

Kvaal notes, “We return from our Asia tech tour with the expectation that the iPhone 8 will drive upside to consensus forecasts. The ramp may be slow; spec and pricing detail has yet to be finalized which may lead to supply constraints in early F1Q18. Supplier ASPs support a $1K price for the iPhone 8, implies upside to Apple ASPs.”

Though the analyst sees a large iPhone ramp ahead, he underscores a key concern that “The complexity of integrating so many new features into the iPhone 8 may, however, limit initial production yields and Apple typically orders excess inventory.”

Meanwhile, though three new iPhone models may be forthcoming in the fall, the analyst expects the most buzz-worthy attraction, the iPhone 8 will not be produced in volume as immediately. “While Apple will likely, and unconventionally, announce three iPhones (7s, 7s Plus, 8) in September, we believe volume production of the 8 may not commence until late September/October given reasons cited above. Apple only began to catch up to iPhone 7 Plus demand in early December 2016; a more challenged ramp implies some risk that iPhone 8 units will slip into F2Q,” elaborates the analyst.

Ultimately, “We expect Apple to navigate a complex 2017 product refresh,” Kvaal surmises.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Jeff Kvaal is ranked #304 out of 4,516 analysts. Kvaal has a 63% success rate and realizes 15.2% in his yearly returns. When recommending AAPL, Kvaal earns 23.6% in average profits on the stock.

TipRanks analytics demonstrate AAPL as a Buy. Out of 37 analysts polled by TipRanks in the last 3 months, 28 are bullish on Apple stock, 7 remain sidelined, and 2 are bearish on the stock. With a return potential of 5%, the stock’s consensus target price stands at $146.14.

Needham Largely Positive on Mobileye/Intel M&A Deal, But Steps to the Sidelines

Mobileye, an Israeli technology company that develops sensors and cameras for autonomous vehicles, compelled top analyst Rajvindra Gill at Needham to move to the sidelines on back of Intel’s decision to acquire all of its outstanding ordinary shares in a $15.3 billion equity deal at $63.54 per share ($14.7 billion in enterprise value).

Though the analyst believes the acquisition is positive regarding the sphere of self-driving cars, he downgrades from Buy to a Hold rating on MBLY without listing a price target.

From Gill’s standpoint, “The deal clearly validates the ADAS and fully autonomous vehicle market, which our proprietary bottom-up market sizing model, indicates 25MM vehicles will have Level 2/2+ and Level 3 capabilities by 2021. We also view this deal as a positive read-through into the entire ADAS and automotive supply chain, namely: ON Semi, MU, CY, NXPI, NVDA, TSEM, and Infineon (NC). We would bifurcate the market between ADAS and fully autonomous vehicles. While MBLY does have a roadmap for L4 and L5 vehicles, the predominant volume of the vehicles over the next 3-4 years will include L2/L2+ ADAS functionalities aided by regulatory tailwinds.”

The real “uncertainty” of the deal circles STMicro, the only production provider of MBLY’s system on a chip (SoC), the integrated circuit EyeQ. Under the terms of the Intel agreement, Gill is unsure whether the plan to have a FinFET process design for sensor fusion and autonomous driving applications by 2020 will be stalled.

“We believe that the ADAS market is still in its early stages of growth. With over 2/3rds market share, Mobileye will benefit from regulatory tailwinds pushing for Level 1-2 ADAS adoption. The company is also leveraging its large EyeQ attach rates to build out REM HD mapping technology – a pre-requisite for Level 3+ driving,” Gill asserts.

Therefore, the analyst predicts the ADAS-focused tech company’s addressable market will see an approximate 34% CAGR rise to $8.5 billion throughout the next five years.

Rajvindra Gill has a very good TipRanks score with a 65% success rate and a high ranking of #43 out of 4,517 analysts. Gill has a 65% success rate and garners 16.7% in his annual returns. When recommending MBLY, Gill collects 19.8% in average profits on the stock.

TipRanks analytics show MBLY as a Hold. Based on 17 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on MBLY stock, 13 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $56.81, marking a nearly 7% downside from where the stock is currently trading.

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