Cormark: here’s the “big surprise” that could drive BlackBerry higher

Cormark analyst Richard Tse says BlackBerry’s (BlackBerry Stock Quote, Chart, News: TSX:BB) story has become even more compelling than the simple product cycle play he first expected.

BlackBerry will report its Q1, fiscal 2014 numbers next Friday, June 28th. The report follows a number of surprising quarters under CEO Thorsten Heins, including a recent Q4 that saw the company report operating EPS of $0.22 on revenue of $2.7-billion, beating the street.

Tse says he expects BlackBerry will report earnings of $.12 a share on revenue of $3.8-billion in their Q1. His estimate is higher than the street consensus of $.04 in earnings on a topline of $3.4-billion. He believes the company sold 7.5-million handsets, consisting of 4-million BlackBerry 10 sales, and 3.5-million BlackBerry 7 and older.

In a research update to clients this morning, Tse today reiterated his TOP PICK rating and $20 one-year target on BB. But he says there is a new development not yet factored into his or consensus estimates; a potential resurgence in enterprise services revenue.

Tse says the prospect of fading services revenue in its consumer segment has rightfully created skepticism about BlackBerry’s prospects, because it accounted for more than 75% of BlackBerry’s absolute gross margin. He expects that with BlackBerry 10, the company’s average-revenue-per-user will drop from an estimated $4.29 last year, to $3.31 in fiscal 2014 and then $2.51 in 2015.

But here’s the surprise: Tse believes the enterprise market could come back in a big way for BlackBerry because of its new BlackBerry Enterprise Service 10 (BES10). The Cormark analyst says the bring-your-own-device movement looked to have kicked BlackBerry’s traditional strength in this market to the curb as people were, increasingly, taking their iPads and iPhones to work. BlackBerry’s previous enterprise service, he notes, was not designed to provide enterprise mobile device management to Android or iOS.

Tse says he believes the pricing per year on each enterprise subscriber is between $100 and $150. At 10-million subscribers, he notes that this could add up to $1.50 EPS to BlackBerry. What’s more, he believes there is an equal or better number of iOS and Android phones in the enterprise, and thinks another 10-million subscribers could come from there. This additional $1.50 EPS upside is not in Tse’s forecast, he says, but soon could be.