Assessing BlackBerry (BB) Stock Post-Earnings

BlackBerry - Shutterstock photo
Credit: Shutterstock photo

Shares of BlackBerry (BB) just can’t get any love. But is it time to bet on a recovery or further declines? Although the company is having a tough time living up to growth expectations, BlackBerry shares are now cheap enough where they may have just bottomed.

Owing to worse-than-expected fiscal second quarter earnings results and downbeat forward guidance, BlackBerry stock got punished, falling more than 26%. Investors were angry by the report last week which featured a miss on the top line and a forecast that suggests the company would now aim for the lower end of what it previously guided for. Complicating matters, BlackBerry’s Q2 revenue miss included gains from an acquisition, which means even its M&A deals aren’t working.

The stock closed Friday at $5.26, down another 3.5%. If you’re keeping score at home, this means the stock — which is now down 26% year to date — has lost 30% for the week. And in the last three and five years, the shares are down 33% and 50%, respectively, grossly under-performing the S&P 500 in both spans. Once the darling of Wall Street for pioneering the smartphone market, BlackBerry has left the hardware market to both Apple (AAPL) and Samsung (SSNLF).

Investors have grown impatient and frustrated with the company’s inability to execute its long-term software/security strategy. For example, the company’s Enterprise Software & Services (ESS) reported weaker-than-expected revenue for the third straight quarter. The market was looking for flat growth during the quarter, but the segment posted a 16% decline. Also of concern is the in the Cylance segment, which showed a noticeable slowdown in revenue growth, falling from 31% growth in Q1 to 24% in Q2. Meanwhile, annual recurring revenue was flat sequentially.

Analysts wasted no time downgrading the stock. Citing lack of confidence in growth, CIBC Capital Markets downgraded the shares to Neutral and cutting its price target to $6.50 from $13. Analysts at MKM also lowered their targets to $6.50, down from $8.75, on concerns of weakness in the core business. The analysts also cited loss of momentum in BlackBerry’s Auto and Radar initiatives. Conversely, Daniel Chan, TD Securities analyst maintained his Buy rating on the stock, though he lowered his price target from $14.50 to $10.

Chan believes the recent decline is "overdone" and the shares are trading at 2.8 times forward revenue, noting that this multiple is a major discount to BlackBerry’s peers in enterprise software which trade at at 4.3 times and its peers in cybersecurity which trade at 3.6 times. From current levels, Chan thinks BlackBerry stock can rise 90% from Friday’s close of $5.26. Wall Street sees things differently as evidenced by the selloff. The rest is now up to BlackBerry to prove it deserves a higher multiple.

Until the top line shows more strength, it’s reasonable to think that, despite the punishment the stock has suffered, BlackBerry shares could have further to fall.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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