Several investment banks initiated coverage on the Israeli-based MobileEye, following its successful initial public offering earlier this month. MobileEye, which counts automakers such as BMW, Audi, Jaguar Land Rover, Tesla (TSLA) , Ford (F) , Honda (HON) and Nissan (NSANY) as customers, shipped 1.3 million chips in 2013 to help automakers develop advanced driver assistance systems and semi-autonomous markets, noted Barclays Capital analyst Brian Johnson, who rates shares "overweight" with a $48 price target.
The company also believes its radar, sensor, microchip and camera technologies will allow it be the first to develop a semi-autonomous driving car at highway speeds. MobilEye is designing the first system for hands-free driving at highway speeds with two automakers, which it expects to launch in 2016.
"Just as PCs and smartphones transformed computing, software will change the way we drive, and MBLY will likely be at the forefront of that change," Johnson wrote in the note. "In our view, MBLY stock offers considerable upside potential given the company's strong competitive position in the advanced driver assistance systems (ADAS) and semi-autonomous markets, which should drive a 45% revenue [compound annual growth rate or] CAGR through 2020 (largely from ADAS) and a 14% CAGR from 2020-2025 (as semi-autonomous kicks in at scale)."
Shares of MobileEye were higher in early Tuesday trading, up 4.2% to $39.80.
Currently, only around 3% of the automotive market uses ADAS, but that's expected to move sharply higher within the next few years, as regulatory factors mandate it. Tesla CEO Elon Musk has talked about introducing an automated car in the past, potentially partnering with Google (GOOGL) , but noted that it would not come until at least 2016.
Am a fan of Larry, Sergey & Google in general, but self-driving cars comments to Bloomberg were just off-the-cuff. No big announcement here— Elon Musk (@elonmusk) May 7, 2013
Mobileye, which generated $81.2 million in revenue in 2013 and $19.9 million in net income, has the chance to maintain its position in the Autonomous Emergency Braking (AEB) market, with its technology being at the core of 91% of the contracts won in the past three years, noted Deutsche Bank analyst Rod Lache, a position that is only like to increase. "And importantly, MobilEye appears to be expanding their lead by growing the functionality of their systems," Lache wrote in a note. "This is expected to include sophisticated software that will serve at the core of the world's first commercially available autonomously driving vehicles."
Lache expects 2014 revenue of $131 million to reach $736 million by 2018, and ultimately reach $2.5 billion by 2025.
MobileEye, which expects to launch its autonomous driving system with six more automakers by 2018, is seen as the "Intel Inside" for ADAS, notes Johnson, but it could be much more, argues Citi analyst Itay Michaeli, who rates shares "buy" with a $48 price target. It could be the industry's "iPhone moment."
"Mobileye's current ~80% share is staring at a $15+ billion LT addressable market (Citi '25E rev = $3.3bln) with high entry barriers and a competitive edge from large unbiased databases," Michaeli wrote in a note. "Mobileye
also sits in the most attractive leg of the supply chain; estimated NI margins >50%."
--Written by Chris Ciaccia in New York
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