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Blackberry’s (BB) transition from consumer-facing to an enterprise software business is being met with mixed reviews on the stock market, especially after recent rocky earnings. Shares skyrocketed out of the gate, up 41% within the first three months of the year but returned all gains over the next three. Now, the company is under fire for its cybersecurity unit. Blackberry acquired security firm Cylane last year, and while it is expected that revenue will grow in the segment, increased competition is worrying investors. That, coupled with not-as-exciting earnings contributed to a 20% stock fall since June.
So what’s next for BB stock? RBC analyst Paul Treiber remains sidelined as he maintains his Sector Perform rating and $9 price target, which implies nearly about 30% upside from current levels. (To watch Treiber’s track record, click here).
After meeting BlackBerry management, Treiber points out that “the company is frustrated with the stock, as management views Q1 results as healthy and the price does not reflect long-term opportunities.” Overall, the analyst says, “management remains confident in its strategy and anticipates stronger growth in coming quarters,” but still maintains his rating as “catalysts are needed for a re-rating.”
But while Blackberry’s stock plunged following earnings, Treiber says, “BlackBerry’s position in its core government and regulated customer base remains solid and the company is aiming to increase its wallet share through add-on sales (Secusmart, AtHoc, Bridge) and in time Cylance.” Concerns are mounting by investors, but management is confident that the ESS revenue growth will strengthen and meet guidance, and the analyst doesn’t seem pessimistic either.
The major factor holding Treiber back is the catalysts. He says, “risk-reward looks more attractive,” but is still “waiting for catalysts to emerge” to push the stock up. The company is trading below peers (at 3.1x FTM EV/S compared to comparable at 4.2x), and is at “towards the low-end of its 2-year historical range (3.0-6.5x).” In order to “justify higher valuation multiples,” Blackberry must show “stronger organic growth in several of…core businesses.”
All in all, while Blackberry was once an exciting opportunity, there isn’t much to say right now. The company missed the boat with smartphones — even if it did help pioneer them — and many Wall Street analysts do not take the time to evaluate the company. TipRanks analysis shows only four ratings, with a consensus of Hold. All four analysts recommend Hold, and there is an average price target of $8.69, representing a 22% rise from current levels. (See BB’s price targets and analyst ratings on TipRanks)