BlackBerry Ltd (NASDAQ:BBRY) is a big mover this session with its shares surging toward a 5-month high after Raymond James’ Steven Li in a note released this morning upgraded the name to ‘Outperform’ from ‘Market perform’ and lifted its price target to $10.50 from $8.00, implying 29.7 percent upside. As the news hit the wires, BlackBerry shares jumped more than 4% to print an intra-day high of $8.22.
“Stop worrying about hardware–only positives from here on,” Li wrote in his note to clients.
Earlier this week, the Canadian smartphone manufacturer launched DTEK 50, a $299 touchscreen-only Android-powered smartphone with BlackBerry level security. While the gadget was not designed by Blackberry itself, all differentiation and security is from its own software.
Addressing DTEK’s prospects, Li said “[t]he worst-case, DTEK flops and BlackBerry becomes a software only company, or DTEK shows there is a market for a secured version of Android, providing a device that is enterprise ready to Android manufacturers.” Li also noted that he likes what he sees in software, suggesting that the lucrative segment offers 80% recurring revenue, 15% organic growth and EBITDA margins of 30%. According to Li, the projected profitable growth for the division is attractive, as a result, he expects profitable growth going forward. In fact, during Q117 BlackBerry saw its software and services revenue make up 39 percent of the total revenue, a 21 percent increase year-over-year.
Speaking of Earnings
The smartphone and software maker is expected to report 2017 second-quarter earnings on Sept. 28. In late June, equities research firm Imperial Capital cut their Q217 estimates for BlackBerry, anticipating EPS of ($0.08), down from their prior forecast of ($0.07). While the loss shows an impressive 38.5% improvement on a yer-over-year basis, the firm, which has an ‘In-Line’ rating and a $7.00 12-month base case estimate on BBRY stock, also issued estimates for the company’s third quarter, saying they expect earnings at a loss of $0.09 and $0.10 in Q417. Imperial Capital expects full fiscal-year 2017 earnings to total a loss of ($0.27) per share.
On the bright side, BlackBerry is clearly trying to build on its software business to the point where it accounts for more than 50% of its total revenue. Additionally, the company continues to refine its QNX platform and services for the Internet of Things. In fact, Raymond James’ Li said in his note this morning that he sees near-term catalysts in BlackBerry’s end-to-end, IoT-based radar system offering.
While BlackBerry can’t and won’t base its turnaround on QNX alone, the fact is that the platform with its immense range of solutions for infotainment systems, including the new QNX Platform for ADAS (advanced driving assistance systems) that is specifically designed to help transform the automotive industry, is probably one of the most valuable things at BlackBerry and will most certainly play a key role in the direction of the company.
On valuation-metrics, shares of BlackBerry Limited have a forward P/E of 0.11. P/E to growth ratio is 2.07, while t-12 profit margin is (49.74%). EPS registers at (2.21). The company has a market cap of $4.28 billion and a median Wall Street price target of $7.00 with a high target of $9.00. Of 21 analysts who follow the stock, 2 analysts rate BBRY a ‘Buy’, 15 rate it a ‘Hold’. Four rate it a ‘Sell’.
Three hours into today’s trading and more than 7.5 million BBRY shares have already changed hands, compared to the stock’s average daily volume of 3.99 million shares.
BBRY currently prints a one year return of about 2 percent and a year-to-date loss of around 15 percent.