Intel's Mobileye Purchase: Sign Of Lessons Learned Or Proof Internal Efforts Are Failing?

Stacy Rasgon of Bernstein believes Intel Corporation INTC deal to buy Mobileye NV MBLY for about $15 billion is an evidence Intel sees current internal efforts in the autonomous space as insufficient to adequately stimulate growth.

“The purchase price values Mobileye at ~30x NTM Revenue, ~60x Non-GAAP NTM PE, and ~76x GAAP PE (inclusive of stock comp),” Rasgon wrote in a note.

Rasgon, who recently downgraded Intel to Underperform, said the bearish thesis was predicated in part on the need for the company to invest significant sums to chase growth as their core PC business declines and datacenter comes under pressure.

“In our opinion today's announcement fits right into that thesis,” Rasgon continued.

Rasgon expects the deal to be accretive to 2018 earnings by 4-6 percent as Intel believes it will be able to offer end-to-end autonomous driving solutions, faster and at a lower cost, in pursuit of a $70-$100 billion 2030 TAM.

In addition, Intel's auto group will be integrated into Mobileye rather than the reverse.

“This sort of "reverse integration" may prove better for retention and execution than the company's prior integration efforts around other deals (typically not handled well),” Rason highlighted.

Rasgon also cautioned that Intel is making a huge early-stage bet on an as-yet unproven long term opportunity.

Moreover, taking a dig at Intel’s claims that the deal will give them the ability to offer solutions faster and at a lower cost, the analyst said “their typical practice is the opposite when they enter new markets.”

At last check, shares of Intel fell 2.05 percent to $35.17. Rasgon has a price target of $30.

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