BlackBerry (BB) Stock Is Still Not a Buy, Says Canaccord

Blackberry (BB) on Friday delivered better-than-expected fourth-quarter earnings, which propelled the stock nearly 14% higher in Friday’s trading session. While third-quarter’s release garnered mixed reactions from investors, there is little doubt that investors were happy with these latest numbers. For the quarter, non-GAAP revenue increased 8% year-over-year to $257 million, while EPS more than doubled to $0.11, from $0.05 this time last year. Not only that, but both figures eclipsed Wall Street estimates.

Canaccord analyst Michael Walkley remains cautious on BB stock with a Hold rating, but raises his price target to $10.00 (from $9.00), which implies a slight upside from current levels. (To watch Walkley’s track record, click here).

Licensing revenue was key to BlackBerry’s strong results. Walkley says, “similar to Q3/F’19, strong licensing revenue once again drove the beat for the quarter, continuing to demonstrate the breadth of the BlackBerry portfolio,” as non-GAAP revenue hit $99 million, above the analyst’s expected $85 million. Moving forward, Walkley believes “strong execution in monetizing the patent portfolio will continue to drive licensing revenue exceeding the quarterly $40M-$45M recurring revenue run-rate, and…anticipate[s] $58M Q1/F’20 licensing revenue.”

Walkley is impressed with BlackBerry’s licensing business, as the company maintains a number of essential and non-essential technology patents. The analyst believes BlackBerry has “successfully built a technology licensing business that management believes is sustainable above $250M annually.” Moving forward, Walkley says he continues to “anticipate potential for improving predictability and solid longer-term growth given the improving base of quarterly recurring revenue.”

Looking ahead, the analyst is increasing his FY2020 and FY2021 estimates, with “total revenue increasing from $1,137/$1,253M to $1,140M/$1,284M.” Walkley says “F2021 revenue increases for ESS from $460M to $462M, for BTS from $266M to $269M, for Licensing from $285M to $287M, and for Cylance from $242M to $263M.” However, even with higher revenue Walkley is lowering his gross margin estimates for both years, though only slightly from 76.6%/77.6% to 75.7%/76.9%. Nevertheless, the analyst anticipates “margin expansion as operating leverage improves through 2020 and beyond.”

Overall, BlackBerry has proved itself as a worthy investment since turning itself around from phone-maker to an enterprise software development firm. Yet even with this and its stock rallying 35% YTD, Wall Street is still mixed about Blackberry’s next direction. TipRanks analysis of four analyst ratings shows a consensus Hold rating on company, with one analyst recommends Buy, two say Hold and one suggests Sell. The average price target among these analysts is $10.67, reflecting a 6% rise from current levels. (See BB’s price targets and analyst ratings on TipRanks)


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