BlackBerry is a buy, says Scotia Capital Markets

It’s been beaten down, but is BlackBerry stock a buy?

BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) may be threatening to drop into territory not seen since before the company’s well-publicized rewrite as a software supplier, but there’s too much value in the company to be stuck in sub-$10.00 territory for long.

So says analyst Paul Steep of Scotia Capital, who thinks the Waterloo-based former tech giant has been overly penalized and is due for a rebound.

BlackBerry is up more than three per cent in trading on Wednesday, a welcome change for a stock that hit its one-year low earlier this month at $8.85 per share. The slide has been going on for more than a year and a half, as investors seemingly grow weary of turnaround talk for the erstwhile phone maker and appear to be wanting to see real growth in the company’s top and bottom lines.

BlackBerry’s latest quarterly results are an example. Delivered on June 26, BB’s fiscal first quarter 2020 amounted to an analyst beat on revenue, coming in at US$267 million compared to the consensus expectation of US$265, while earnings of $0.01 per diluted share were in line with estimates.

BlackBerry stock: Buy on the dip…

But the stock fell nine per cent on the Q1 release, nonetheless, with the market reportedly expecting more from Cylance, the company’s major cybersecurity acquisition of last year. For the Q1, Cylance contributed $32 million in revenue according to GAAP or $51 million on a non-GAAP basis.

Earlier this year, BlackBerry CEO John Chen said that the Cylance acquisition marked the completion of his company’s turnaround, going “from a portfolio of strong assets to an enterprise security company.”

But the days of dragging BlackBerry through the mud should end soon, according to Steep, equity research analyst at Scotia Capital, who reportedly sees a 36-per-cent upside to BB over the next 12 months.

BlackBerry’s stock is a buy and is being “overly penalized”

“The stock is being overly penalized and currently very little is being attributed in terms of valuation to growth engines of the company, particularly Cylance,” Steep said, according to a report from BNN Bloomberg on Wednesday. “The floor is in and it’s on them to show annual recurring revenue Cylance.”

BNN Bloomberg’s Amber Kanwar says the comparison between Cylance and cybersecurity competitor Crowdstrike Holdings  is a telling one. Crowdstrike, which went public in June and has more than doubled since, has a current market capitalization reaching close to US$50 billion, while BlackBerry as a whole is valued at just over $5 billion.

“There’s an interesting connection between Cylance and Crowdstrike,” said Kanwar on BNN Bloomberg on Wednesday. “The CEOs used to be best friends and they had a bitter falling out that led them to create these separate but competing businesses that are essentially the same in what they do, maybe different when it comes to the margins and there’s some perception that Crowdstrike does have a little bit of an edge when it comes to customers.”

“But it’s just a huge, crazy divergence to what the public is assigning Crowdstrike and what the market is willing to give BlackBerry for purchasing Cylance. This still leaves the onus on BlackBerry to surface value,” Kanwar says.

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