Auto Macro Weakness Spells Uncertainty for BlackBerry Stock


Volatility is king right now, as investors of security software specialist BlackBerry can attest (BB). The Canadian company has enjoyed a wild ride recently, although ostensibly in the wrong direction. The stock is down by 45% year-to-date.

Over a third of that was actually shed in today’s session. The stock is now firmly in penny stock territory, a far cry from the days when Blackberry phones were all the rage and the share price peaked at $147.55 – all the way back in June 2008. Since then the business has completely changed and BlackBerry now generates almost all its revenue from software and services sales.

So, why the latest drop, you ask? Simple: BlackBerry disappointed with its latest quarterly statement. Having recently bounced off a new multi-year low, investors were hoping the F4Q20 results could seal a turnaround in fortunes, but it appears the print has had the opposite effect.

So where is the problem? BlackBerry missed on the top line. Despite a year-over-year increase of 13.2%, the company reported revenue of $291 million, lower than the Street’s call by $5.29 million.

The company did beat on EPS, which came in at $0.09, ahead of the forecast for $0.04. BlackBerry also recorded higher than expected licensing revenue of $108 million, but there was further disappointment from the IoT business. With sales of $127 million, the section underperformed, primarily due to BTS (blackberry technology solutions). The segment has been hit hard by the slowdown in the auto industry supply chain due to the coronavirus. Management expect this trend to continue for the near future on account of the temporary shutdown of auto production across the globe and the associated slowdowns of auto sales. Due to the macro uncertainty, management did not provide formal F2021 guidance, either, seemingly sowing further uncertainty among investors.

Canaccord Genuity’s Kenneth Herbert remains on the fence. The 5-star analyst said, “While management has created a cogent long-term strategy and the shares are potentially compelling for longer term-oriented investors, we await more proof in execution on the new product roadmap, evidence cross-selling opportunities emerge, stabilizing to growing ESS sales, evidence BTS starts to recover from its strong reliance on the auto market, and the potential for upside to our estimates before becoming more constructive on the shares.”

Accordingly, Herbert reiterated a Hold on BlackBerry but along with lowering estimates, lowered the price target from $7 to $6. Still, from current levels the upside is a handsome 68%. (To watch Herbert’s track record, click here)

With 4 further Hold ratings published by analysts over the last 3 months, BlackBerry has a Hold consensus rating. Importantly, though, the average price target is $7.13, and implies possible upside of a considerable 121%. (See BlackBerry stock analysis on TipRanks)

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