STMicroelectronics: A Play On Mobileye Growth

| About: STMicroelectronics NV (STM)


I found that STMicroelectronics manufactures the chips that Mobileye uses in its products.

For investors who are have an issue with the high valuation of Mobileye, STMicroelectronics may be a way to capture Mobileye growth at a discount.

Shares of both Mobileye & STMicroelectronics could see action tomorrow because Mobileye has its first earnings report tomorrow before the bell.

In this article, I will be looking at STMicroelectronics (NYSE:STM) as a way to gain exposure to Mobileye (NYSE:MBLY) because STM manufactures chips for MBLY. Mobileye, with its IPO earlier this year, has put advanced driver assistance systems [ADAS] into focus as more and more auto manufacturers are incorporating the technology into vehicles. The technology is exciting because it helps reduce the number of automobile accidents with other vehicles, or objects. Some of the features that are offered through Mobileye products are:

  • Lane Departure Warning and Lane Keeping & Support
  • Traffic-Sign Recognition
  • Enhanced Headlamp Management
  • Vehicle Detection for Forward Collision Warning
  • Headway Monitoring and Warning
  • Radar-vision fusion abilities
  • Adaptive Cruise-Control system
  • Collision Mitigation
  • Pedestrian Detection
  • General object detection

With the entire above product offerings and the promise of saving lives and money for drivers, it is no wonder Mobileye stock has been on fire since its IPO. Shares of MBLY have risen 27.84% above its closing price on its first day of trading on August 1st. What mobile has is a great product, but as far as the stock goes, the valuation is the key for many investors. According to Morningstar, MBLY has a forward PE ratio of 113.8, which is insanely high. Because of that, I started doing some research on MBLY and found that STM was the chip supplier for MBLY. STM has a forward PE of 17.1, which is more reasonably priced than shares of MBLY on a valuation basis.

Growth Drivers

STM will benefit as more and more auto manufactures will incorporate Mobileye products into their vehicles. In the company overview, section on the Mobileye website states:

"By the end of 2014, the technology will be available in 160 car models from 18 car manufacturers (OEMs). Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016."

Therefore, over the next two years the number of car models that will have Mobileye products will increase 48%. With the coming, increase in vehicles having Mobileye products there will be a significant need for the chips that STM manufacturers.

In addition, Mobileye has a long-term strategy that not only includes traditional vehicles, but also driverless vehicles. The following statement from the company overview section of Mobileye states:

"Mobileye is already working on the next evolution DAS technology - the autonomous driving - and is planning to launch, in the 2016 time frame and with two partner OEMs, the first hands-free capable driving at highway speeds and in congested traffic situations. The feature set is also part of pre-development programs with 6 OEMs - programs that are likely to turn into serial production programs for 2018 time frame."

Closing Thoughts

In closing, I believe STM is a great way to capture the growth and adoption of Mobileye products in new vehicles at a discounted valuation. In addition, STM pays a 4.03% dividend yield so investors get an income kicker in addition to the exposure to Mobileye growth. I believe STM will be in the spotlight shortly because Mobileye has its first earnings report since going public tomorrow before the open.


Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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