AMBA short at low eps estimates
Battleground: Morgan sticks by Ambarella after guidance cut, two downgrades The shares of Ambarella (AMBA) are tumbling after the chip maker reported stronger than expected quarterly results but cut its guidance. Two research firms, Craig-Hallum and Roth Capital, downgraded the stock on the heels of the report, but Morgan Stanley remained upbeat on the company's outlook in providing technology for computer vision applications. RESULTS: Ambarella, which develops chips used in video systems, reported second quarter earnings per share of 48c, versus the consensus outlook of 44c. Ambarella's revenue came in slightly higher than expected. However, it now expects its full-year topline total to fall 3%-7%, versus its previous guidance for it to come in between a decline of 3% and an increase of 3%. The company said it expects its revenue from the drone market to fall for the rest of the year. DOWNGRADES: Craig-Hallum analyst Richard Shannon cut his rating on the stock to Hold from Buy. The company reported "solid" results and guidance, driven by strength in its security and auto markets, though it is facing "headwinds" in the drone market that "will likely take a few quarters to improve," the analyst stated. Moreover, the company is increasing its investment in computer vision chips and the outlook for the sales of such chips is uncertain, Shannon said. He noted that the company believes that strong demand for the low-cost DJI Spark drone, which does not utilize Ambarella's chips, could be negatively impacting the sales of higher cost drones that do incorporate its products. The analyst does not expect Ambarella's revenue from drones to rebound quickly and he thinks the shares could remain "in a range for some time." He slashed his price target on the stock to $50 from $68. Roth's Suji Desilva cut the rating on Ambarella to Neutral from Buy. The analyst expects the company to continue to benefit from growth in its sports wearable, security and auto markets. However, the prospects for its drone market are particularly uncertain, the analyst stated. Desilva said that he "would wait for increasing stability in core demand markets" and increased visibility in demand for Ambarella's computer vision products before becoming more bullish on the stock. He cut his price target on the shares to $50 from $65. MORE BULLISH MORGAN STANLEY: Analyst Joseph Moore significantly lowered his fourth quarter and 2018 estimates for Ambarella. However, the analyst said he was encouraged by the company's comments on its computer vision products. He noted that Ambarella plans to provide samples of the products to its customers next quarter. Although Moore doesn't expect Ambarella to obtain revenue from the products until late next year, he thinks that investors could become enthusiastic about them "given the importance of machine vision," and he believes that a successful launch of the products could boost the stock. Moore lowered his price target on Ambarella to $60 from $65 but keeps an Overweight rating on the shares. PRICE ACTION: In morning trading, Ambarella sank 20% to $43.42. GoPro (GPRO), a prominent customer of Ambarella's chips, is flat at $9.21 per share, off its earlier session highs.
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