There’s little risk in BlackBerry at these prices, says Cormark

Cormark analyst Richard Tse says BlackBerry’s (BlackBerry Stock Quote, Chart, News: TSX:BB) disappointing Q1 results last Friday raises questions about the support level the company actually commands from its carrier network, but the subsequent reaction from investors means the stock is once again trading below its breakup value, and is therefore much less risky.

On Friday, after a short string of quarters that raised investor’s expectations, BlackBerry disappointed with its Q1, which was the first report to contain revenue from devices running its new BlackBerry 10 operating system. For its Q1, 2014, which covers the three months ended June 1st, the company lost $84-million, or 16 cents a share on revenue of $3.1-billion.

Tse says that BlackBerry’s Q1 wasn’t all bad; he says sequential revenue was up by 15%, and that BlackBerry was clearly affected by a staggered launch, with the more popular Q10’s availability obviously weighing on the quarter. BlackBerry is also making inroads in the enterprise segment, with 60% of its Fortune 500 customers having ordered, downloaded, or installed BlackBerry Enterprise Service 10.

But the new negative here, he says, is that he sees BlackBerry once again posting losses in both the current fiscal 2014 and the in 2015. What’s more, he says, the company is likely to see a decline in its cash balance to less than $3-billion that will likely prompt another round of restructuring.

But with BlackBerry currently threatening to break the $10 mark on the downside, Tse says the play here is that BlackBerry is now trading well below its net asset value, and investors are essentially getting a free option on BlackBerry’s services business, which he think could generate $1-2 in earnings, regardless of what its hardware business is doing.

In a research update to clients this morning, Tse lowered his rating on BB from TOP PICK to BUY and lowered his one-year target price on the stock to $13.50, from $20. This target price, he says, reflects the net asset value of the company, and does not take into account the earnings the company could generate from its services business.