Is BlackBerry (TSX:BB) a potentially profitable trade? Absolutely. Is the company a good long term investment? The jury is still out, says Cormark analyst Richard Tse.
Tse says BlackBerry’s platform transition is still an uphill battle, and the prospects of a real turnaround are a mere glimmer on the horizon. He says the Waterloo-based company is now “working against the clock” because it has a lot to do to carve out what he thinks is its most likely path to survival; to become a niche player in the mobile device management market. To do this, BlackBerry will need to release and market a backward compatible BES platform to curtail the exodus it is seeing in enterprise, he says.
But Tse says he expects that positive sentiment around the now John Chen led company will continue because the short term actions he has taken have been impactful. He says BlackBerry shares adding more than 20% this year are based on the reasonable assessment that getting rid of its negative margin hardware business, paring its overall cost structure, reinvesting into targeted growth, and outsourcing its hardware business to FoxConn are positives.
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The Cormark analyst says he expects that BlackBerry’s Q4 results, which will be reported this Friday before market open, will continue to show progress. He says positive sentiment around the company’s improving balance sheet could be augmented by a potential tax refund that could add $1-2 per share in cash. Still, Tse expects a decline in the company’s core business and thinks BlackBerry will miss the mark on both the topline, where he sees revenue of just $900-million and bottom line, where he sees a loss of $0.78.
But Tse says the back and forth between short term sentiment and long term questions marks have him siding with the former. In a research update to clients today, he says that short term drivers are behind him raising his target price on BlackBerry to $11.50, up four dollars from his previous $7.50 target, and upgrading the stock from “Market Perform” to “Buy”.
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