Mobileye Earnings Preview: MBLY Can Power Higher

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Israel-based automobile communications outfit Mobileye N.V. (MBLY) — a recent IPO — is in the fast lane to report its latest earnings Thursday morning. And if analysts, a favorite of funds and technicians in search of strong base patterns have their way, Mobileye stock is poised to motor higher.

mobileye mbly stock

While not a household name here in the states, Mobileye stock has caught the attention of a group of varied market professionals since debuting on the public markets last August.

Most recently, Mobileye stock got a boost following the company’s inclusion onto Volkswagen AG’s (VLKAY) “Future Automotive Supply Tracks,” or FAST, initiative as traders reacted to positive notes from Citigroup and Morgan Stanley and a target lift to $68 by RBC Capital.

Mobileye is already supplying other top auto manufacturers such as General Motors (GM), Ford (F), Honda (HMC) and Tesla (TSLA). But becoming Volkswagen’s core vision systems supplier would prove to be a “big win for MBLY,” according to Morgan Stanley’s Ravi Shanker.

Hedge funds have been bullish and active in Mobileye stock as well. According to Insider Monkey, those pros have upped their collective positioning by more than 200% over the past quarter as 14 additional funds entered MLBY with a combined stake of over $450 million.

Mobileye Earnings Peek

Looking to Thursday’s premarket earnings release, analysts are forecasting earnings of 4 cents per share. That compares to the year-ago period’s breakeven, but would match last quarter’s result, which topped views by a penny on sales of around $44 million.

Of course, should Volkswagen select Mobileye as its supplier, past results would certainly not be indicative of future performance — and I’d estimate that would be very good and welcome news for Mobileye stock and its shareholders.

MBLY Weekly Chart

Mobileye MBLY stock
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Source: Charts by TradingView

Cup bases are notorious for having technical pauses of a couple or more weeks within the higher, right side of the base. When the pattern develops after a breakout of the cup highs and the stock remains within 10% of that important pivot, it’s generally known as a high handle. With Mobileye stock, the handle happens to be developing on top of the cup pivot from last October.

Mobileye Options

mobileye mbly stock
Click to Enlarge
Source: Charts by TradingView

The current estimate on Mobileye stock’s earnings reaction works out to traders bracing for a move, up or down, of 10% over the next couple weeks. That would be just larger than the largest move of 9.1% seen in MBLY stock last September during its first public earnings release.

Mobileye’s three other reports yielded investor reactions of -5.7%, a volatile but little changed 1.4% and most recently a move of 1.7%. If we strip away the directional bias, the average absolute move has been 4.47% with 3.65% of wiggle room based on one standard deviation.

Both option premiums and underlying stock movement are just removed from all-time lows and turning higher. So, buying options for either a directional or non-directional bet appears to hold an advantage if we believe those lows, which are well off MBLY’s highs, won’t be revisited anytime soon. However, volatility risk in a directionally biased play is minimized in this sort of situation.

Mobileye Stock Bull Call Spread

In checking MBLY’s options board, one spread which looks to carry a nice reward-to-risk profile is the Aug $60/$63 bull call spread for up to $1.20 per spread. The fact that Mobileye’s stock performance has been erratic and doesn’t have a lengthy track record are two other factors supporting the use of this type of spread.

The max spread risk compares to buying the $60 call outright for $2.35 or the $63 call for $1.25 and allows for a nice max return of 150% above $63. This requires a move of just over 5% as of Tuesday’s close and is very close to the calculated average move in Mobileye stock.

A similar dollar return can be had in the Aug $60 call if Mobileye stock gets to $64.15. That’s roughly 2% more than required by the call spread, but does have the advantage of being open to further profits if shares rallied higher. While that may occur, the chances are obviously lower and there’s also 47% more dollar risk at stake should shares of MBLY not cooperate.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/08/mobileye-stock-earnings-mbly-trade/.

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