What’s behind Morgan Stanley’s flip-flop on BlackBerry?

The stock is getting a boost from Morgan Stanley analyst Ehud Gelblum, who upgraded the company to “overweight” from “underweight”, and more than doubled his price target, from (US) $10 to $22.

Gelblum explained the reasoning behind the upgrade.

“We are upgrading BlackBerry to overweight from underweight on the thesis that the mix-shift of devices away from BB6/7 and to BB10 expands gross margin and average sale price even after assuming a lower service attach rate on BB10 and very unheroic assumptions on numbers,” he said in an update to clients this morning.

The move is a fairly stark reversal from Gelblum’s take on BlackBerry 10 prior to its launch, when he compared the Waterloo company to PALM and BlackBerry 10 to that company’s ill-fated WebOS.

“We continue to believe BB10 has a low chance of success,” he said. “While some of the new features on BB10 seem innovative, we had a similar reaction to Palm’s WebOS when we saw it at CES in ‘09. Ultimately we believe BB10 is too late, and subs continue to shift to competitive devices. According to a global mobile workforce survey in mid-Oct, just 5% of respondents expect to upgrade to a BB, even below MSFT at 8%.

So what’s behind Morgan Stanley’s flip-flop on BlackBerry?

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There is, of course, the increasing evidence that BlackBerry 10 sales are better than expected. On March 13th, BlackBerry announced that an unnamed partner had purchased a million BlackBerry 10 smart phones. The order, said the company, was the largest-ever single purchase order in its history.

But there are less quantifiable signals that may have come into play. RIM CEO Thorsten Heins, for instance, is displaying increasing confidence about the launch of the platform many said was a “make or break” moment for the once high-flying Canadian company.

In an interview with The Australian Financial Review Monday, Heins said the BlackBerry had surpassed the iPhone.

“History repeats itself again I guess … the rate of innovation is so high in our industry that if you don’t innovate at that speed you can be replaced pretty quickly. The user interface on the iPhone, with all due respect for what this invention was all about is now five years old.”

Heins said the company, in particular, was surprised by the number of customers who had left rival platforms such as iOS and Android for BlackBerry 10, a move he said was not going unnoticed by app developers.

Last week, BlackBerry’s board member and largest shareholder Prem Watsa had a less charitable take on analyst upgrades and downgrades on the company. In his annual letter to shareholders of Fairfax Financial, of which he is the CEO, the man sometimes referred to as “Canada’s Warren Buffett” said the action around the stock was simply the result of a lack of perspective.

“What is striking, even for a person like me who has seen many bull and bear markets, is that at $6 per share, all the Wall Street and Bay Street analysts were uniformly negative – just as they were uniformly positive only a few years ago at prices north of $100 per share, ” he said. “John Templeton’s advice to us: “Buy at the point of maximum pessimism”, still rings in our ears!!”

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