Pacific Crest Reiterates Buy on Ambarella Inc (AMBA) Despite Disappointing Drone Outlook

Ambarella Inc (NASDAQ:AMBA) posted fiscal second-quarter results that have sent shares tumbling almost 7% today due to weak drone guidance. Yet, Pacific Crest analyst Brad Erickson reiterates an Overweight rating on AMBA with a price target of $75, which represents a 12% increase from where the shares last closed.

AMBA outclassed the street on fronts of revenue and EPS estimates, as well as October quarter guidance, which has slightly beat consensus. Though the analyst acknowledges that management for the semiconductor giant indicates a “disappointing” outlook for drone sell-in, he holds on to optimism for upside contingent upon demand. However, in reaction, he has slightly cut revenue estimates.

From Erickson’s perspective, AMBA has opted for a “wait-and-see approach to FQ4,” and has noted full-year guidance remains unchanged. He contends, “Given the company’s historical earnings outperformance relative to guidance […] we believe there could easily be upside to our estimates.”

“While the outlook for drone sell-in was a bit disappointing, we think management is being conservative; we could still see upside depending on demand. We are lowering revenue estimates slightly but our EPS is unchanged on better gross margin. We’re sticking with AMBA and our $75 price target on rock-solid execution, clear continued technology leadership and potential for better-than- expected holiday demand,” Erickson concludes.

As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, one-star analyst Brad Erickson is ranked #3,625 out of 4,132 analysts. Erickson has a 52% success rate and faces a loss of 6.2% in his yearly returns. However, when recommending AMBA, Erickson earns 2.4% in average profits on the stock.

TipRanks analytics demonstrate AMBA as a Buy. Based on 8 analysts polled in the last 3 months, 5 rate a Buy on AMBA, while 3 maintain a Hold. The consensus price target stands at $72.33, marking a 7% upside from where the stock is currently trading.

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