Morgan Stanley Raises Ambarella’s Target Price to $222 Ahead of Q3 Earnings

Morgan Stanley raised their base stock price forecast on Ambarella to $222 from $137 ahead of third-quarter earnings, reiterating an “Overweight” rating on a fabless semiconductor design company and said consensus has swung to a more constructive outlook on growth and valuation has become the bigger debate.

The company will release its third-quarter earnings results on Tuesday, November 30. The Santa-Clara based company is expected to report its third-quarter earnings of $0.49 per share, which represents a year-over-year decline of over 440% from $0.09 per share seen in the same period a year ago. Revenue is expected to increase by over 60% to $90.5 million.

“We are updating our 5-year earnings roadmap, with higher assumptions for some of the auto and surveillance categories. We have been surprised by the move in the stock, but see it as synchronized with other high growth names, and we see January CES as an important catalyst. Remain Overweight, Price Target higher,” noted Joseph Moore, equity analyst at Morgan Stanley.

“…we are raising our five-year revenue buildup. Thoughts on the quarter (to be reported this week) and other upcoming catalysts: We expect the quarter to be solid, though we would caution that there should not be as much upside as last quarter. Consensus already assumes January is meaningfully better than seasonal (down slightly); we are comfortable with that number, though ours is a bit more conservative, but we don’t expect large upside.”

Morgan Stanley gave the stock price forecast of $289 under the bull scenario and $149 under the worst-case scenario. Other equity analysts also updated their stock price outlook. In October, Needham raised the target price to $220 from $140. Stifel lifted the target price to $200 from $185. Rosenblatt Securities upped the target price to $210 from $160.

Thirteen analysts who offered stock ratings for Ambarella in the last three months forecast the average price in 12 months at $173.23 with a high forecast of $225.00 and a low forecast of $115.00. The average price target represents a -4.74% change from the last price of $181.85.

Of those 13 equity analysts, ten rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks. On Monday, Ambarella shares closed 5.60% higher at $181.85. The stock surged over 95% so far this year.

“We like Ambarella’s fundamental position and think that bears generally underestimate the company’s technology leadership. We think that the company’s computer vision (CV) products are unique and expect CV to drive transformative growth,” Morgan Stanley’s Moore added.

“Home security and automotive applications will add growth on top of existing core market growth (core markets include surveillance, dash-mounted autos and OEM auto surround view/digital rear-view mirrors). Sensor fusion beginning with radar and camera begins to materialize, though we do not yet base material revenue growth on this market.”

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