Blackberry (BB): Top Analyst Offers Takeaways Following Analyst Day

BMO's Tim Long notes that the BB team held off on posting a revised short-term guide in its yearly conference.

After attending Blackberry Ltd’s (NYSE:BB) Analyst Day in San Ramon, California, top analyst Tim Long at BMO has subdued insights to share, considering the BB management team only offered a “limited” financial guide.

Long likewise sees a smartphone giant unafraid to investigate acquisition opportunities to utilize a cash position of $1.7 billion, from analytics and machine learning to cybersecurity. That said, the analyst does not forecast a short-term trajectory approaching an operating margin model of over 20%; and as far as acquisition prospects are concerned: “While these may help the top line, we believe such M&A is unlikely to dramatically improve the margin profile.”

In terms of Enterprise, Long highlights, “Management is positioning its Enterprise of Things platform at the core of its strategy. Although it is still too early to sell an integrated end-to-end solution, management plans for customers to steadily add individual components. Blackberry expects steady revenue improvement here, in line with our model of 8%/6% growth in FY19/FY20.” Important growth initiatives for next year point to share consolidation at customers using multiple vendors, rapid-fire adoption of add-on apps, which notably boosts “stickiness,” as well as rising professional service sales, including cyber security consulting.

Regarding Blackberry Technology Solutions (BTS), “Management expects BTS will be the fastest-growing segment in FY19, which jibes with our view of 15% growth for the year. QNX continues to have a strong presence in automotive, particularly with Tier 1 suppliers,” cheers Long on a note of optimism.

“Beyond handset brand licensing, Blackberry is looking to partners like Punkt to integrate its secure Android solution into non-smartphone devices. The company continues to license its patents independently and via partner Teletry, though we expect this business to be lumpy and challenging to model,” contends the analyst.

The BB team has reaffirmed expectations for double-digit software billings come next year as well as positive EPS and cash flow. Down the line, the giant aims to reach 90% of its software/services as “recurring,” with an 80% to 85% gross margin, a 20% to 25% operating margin, and 25% to 30% in adjusted EBITDA. For context, Long estimates BB will hit a gross margin of 76% and operating margin of 4% in two years.

For now, the analyst maintains a Market Perform rating on BB stock with a $12 price target, which implies a 15% upside from current levels.

Tim Long has a very good TipRanks score with a 67% success rate and an impressive ranking of #113 out of 4,774 analysts. Long earns 20.8% in his yearly returns. When recommending BB, Long realizes 15.8% in average profits on the stock.

TipRanks indicates BB has sell-side analysts largely sidelined on the tech player’s market prospects at play. Out of 6 analysts polled in the last 3 months, 2 are bullish on BB stock, 3 remain sidelined, while 1 is bearish on the stock. With a slight return potential of nearly 3%, the stock’s consensus target price stands at $10.68.

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