The automotive industry is at the beginning of a major upheaval, similar to the first boom and spread of internal combustion engine cars. Important new technologies are entering the scene, including electric propulsion systems – and autonomously driven vehicles. In China, automakers are already building autonomous cars with a full suite of sensor systems and putting them on the road. We can look forward to a similar evolution in the US auto industry, perhaps starting as early as next year.
The beginning of the change is already here. In Houston, Texas, trials are already underway by Domino’s Pizza, Kroger and FedEx using autonomous vehicles to deliver everything from prepared food to groceries to packages, while in California 7-Eleven is conducting a similar test in Silicon Valley. If successful, these small-scale trials hold the promise of scale-up and massive change in logistics networks. Some estimates put the potential impact of autonomous vehicles on the global economy at $7 trillion annually.
However, none of this would be possible without a major shift in the sensor systems that make self-driving cars possible. These systems, called LiDAR, as recently as 10 years ago could cost more than the entire rest of the car — but in recent years, that price has dropped to less than $1,000 per system, and that cost reduction has been accompanied by improvements in quality. The emergence of affordable, high-quality sensor systems, the “eyes” of autonomous vehicles, marks the solution to a major challenge for the industry.
Against this background, we used TipRanks platform to extract details about two stocks that are closely related to the autonomous car revolution. The pair has recently been endorsed by certain street analysts who predict big gains for both. So, let’s see how they are ready to take advantage of this new paradigm.
Mobileye Global (MBLY)
First up is Mobileye, a company that started with advanced driver assistance technology and has since applied that expertise to autonomous vehicle sensor systems. The company’s assistance and safety systems are well-known – sensors that activate alarms if you drive too close to the car in front or start to drift out of your lane. More than 25 automakers have partnered with Mobileye to install these systems, and more than 50 million units are on the road worldwide. The company is now working with 13 automakers to enable self-driving car systems.
The company’s service options include a range of functionalities between simple driver assistance and fully autonomous driving. From cloud enhancement and front-facing cameras to 360-degree camera coverage to adding LiDAR sensors to off-the-shelf solutions that will adapt self-driving cars to the user’s needs. The fully autonomous Mobileye Drive systems include mobility-as-a-service options that will have clear applications in delivery of goods, public transport and robot taxis.
All of this, however, requires funding at a massive level – and to raise that capital, Mobileye re-entered the public markets. The company was public until its acquisition by Intel in 2017; in October of this year it spun off and held its second public offering of shares. The event in which the MBLY ticker entered the markets on October 26 placed 41 million shares on the market at $21 each and included an option to purchase over 6 million additional shares. When the offering closed, Mobileye successfully raised approximately $990 million in gross proceeds.
Start coverage of this stock for Raymond James, 5-star analyst Brian Gezuale notes the company’s total addressable market of $40 billion and describes it as a “pioneer and undisputed leader in the computer vision/advanced driver assistance systems (ADAS) market in the automotive industry.”
Looking ahead, Gesuale predicts a solid performance, noting, “We model revenue growth of 27% ($1.76 billion), 24% ($2.18 billion) and 33% ($2.89 billion) from 2022 to 2024. We expect 2022 and 2023 to be the slowest growth periods for the next 5 years given the supply chain hampering car production and the math impacts of the larger revenue base, but ultimately we see new products with higher content/vehicles that lead to re-acceleration. We model EBITDA of $594 million, $627 million and $959 million for the same periods at margins in the low 30%%”
The analyst summed up: “The stock is poised to benefit from upcoming key product launches, increased vehicle content, margin improvement and accelerated growth as autonomous driving becomes a reality.”
Along with these bullish comments, the analyst gives Mobileye’s new stock a Strong Buy rating and a $50 price target to suggest a solid upside of 84% over the next 12 months. (To watch Gezuale’s record, Press here)
Overall, we’re looking at a stock with a moderate buy consensus rating here. MBLY has 11 analyst reviews recorded, including 8 buys and 3 holds. Shares are currently trading at $27.22, and the average price target of $37.50 indicates a potential one-year upside of 38%. (Check out the MBLY stock forecast at TipRanks)
Luminar Technologies (LAZR)
Next up is Luminar, a Silicon Valley firm based in Palo Alto that designs and manufactures LiDAR systems. Luminar works at all stages of the development and manufacturing process, from the design of the semiconductor chips that are the “brains” of the system, to the physical hardware of the electronics, transceivers and receivers that make the system work.
Luminar has been publicly traded for nearly two years with IPPod via the SPAC route, and during that time its stock has fallen dramatically from the highs reached in December 2020. The drop in share price reflects the reality of a company that is not quite ready to move into full production. as well as regular quarterly net losses and SPACs fall into disfavor. However, the latest quarterly report shows some reason for optimism.
In the 3Q22 financial release, revenue rose sharply, up 60% year-over-year to $12.8 million. Third-quarter revenue growth beat estimates and benefited from acceleration of customer contracts; also showed a 29% increase over the previous quarter. Although the company reported a non-GAAP net loss of $63.4 million, coming in at 18 cents per share, the number also beat Street expectations. Also of interest to investors, Luminar ended the third quarter with over $553M in available cash assets – even after a quarterly cash burn of ~$52M.
Most important, however, was the announcement that the Luminar had finally entered regular production with its introduction into SAIC’s R7 car. SAIC is China’s largest automaker, and the R7 is the flagship of the firm’s Rising Auto brand. The introduction of Luminar sensor systems on the road with SAIC’s vehicle marks an important milestone for the LiDAR company and its introduction into consumer vehicles.
analyst Emmanuel Rosnerof Deutsche Bank, covers Luminar and on the latest developments he says: “The company appears to be on track to build out its new highly automated manufacturing facility, with 250,000 units of capacity coming online in 2H23, which we believe could help Luminar cuts BoM to the $500 level in 2024. Overall, we believe Luminar continues to demonstrate solid momentum in meeting or exceeding its near-term targets and look forward to hearing more details on its path to profitability with existing capital. . We continue to see LAZR as the best-positioned LiDAR vendor to capture meaningful business gains for L3+ autonomy.”
Going forward, Rosner puts a Buy rating on LAZR stock, along with a $15 price target, suggesting a solid 101% gain over the next year. (To watch Rosner’s record, Press here)
Overall, LAZR shares receive a Moderate Buy rating from the analyst consensus. This rating is based on 9 recent street reviews, breaking down into 5 buys and 4 holds. With an average target price of $14 and a current trading price of $7.45, Luminar shares show a one-year potential upside of 88%. (Check out the LAZR stock forecast at TipRanks)
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Rebuttal: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.