Blackberry (BB) Posts Strong 3Q Earnings, but This Analyst Hesitant on Stock

Remember when the conversation was about Blackberry vs. iPhone?  

It felt like forever ago, but it was only ten years ago that Blackberry (BB) was actually a competitor to the then-new Apple iPhone. Its stock had reached a peak market cap of about $80 billion and its line of smartphone products — including the Curve, Bold and Torch — were among the most popular phones in the US. But since Apple and Google took over the market the company has been a shell of itself. Now, Blackberry is well underway in its transformation from phone maker to security software company.

Though the company reported strong third quarter results, Canaccord analyst Michael Walkley maintains his Hold rating and lowers his price target to $9.00 (from $11). (To watch Walkley’s track record, click here) 

Its third quarter report showed revenue of $228M versus Walkley estimate of $203M with “upside driven largely by a strong licensing quarter combined with slightly better than expected performance in ESS and BTS.” Though revenue was down 3% from the same period last year, operating profit and EPS both grew 69% and 67%, respectively. Revenue growth guidance for the rest of the year was reiterated at 8% to 10%.  

Walkley believes “strong execution in monetizing the patent portfolio will continue to drive licensing revenue exceeding the quarterly $40 to $45 million recurring revenue run-rate.” Further, he says the company “has successfully built a technology licensing business that management believes is sustainable above $200M annually,” as Blackberry is in a “strong position in essential patents for wireless standards such as LTE and non-essential patents for key technology areas such as encryption, user interface, security, and other areas.” 

Looking ahead, Walkley says, “we are optimistic regarding BTS (Blackberry Technology Solutions segment) growth potential over the next several years with growth in QNX (operating system) revenue potentially accelerating in F’20 and beyond.” But the analyst decreased his price target “based on roughly 4x EV/ Sales on our F2021 estimate of $1,253M.” 

Overall, the now-software maker has the Street divided. Based on eight analysts polled in the last 3 months, three are bullish on Blackberry stock, while five remain sidelined. The 12-month average price target stands at $11.56, marking a 53% upside from where the stock is currently trading. (See BB’s price targets and analyst ratings on TipRanks) 

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