It’s been a year to forget for BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) but the worst may be over according to Bank of America Merrill Lynch which brought a ray of hope to the tech company by upgrading the stock on Monday.
The US bank said there is considerable value to BlackBerry’s assets —if it could only start exploiting them.
BlackBerry’s share price has been wallowing in sub-$6.00 territory for the past month and a half as investors continue to shy away from the resurrected tech company which continued to underwhelm with its latest quarterly report delivered in late September.
BlackBerry has shown promise as a reinvented software and security firm but has so far failed to deliver the revenue growth expected of a company seemingly well-positioned in of-the-moment high-growth industries like cybersecurity and Internet of Things connected tech.
The company posted a net loss of $44 million for its latest quarter, compared to a profit of $43 million a year earlier, with revenue up 22 per cent year-over-year. Analysts pointed to a miss in BlackBerry’s enterprise software and technology solutions segment, however, which featured a five-per-cent drop in revenue for the quarter. (All figures in US dollars.)
And coupled with the quarterly numbers was management’s lowered guidance for the company’s fiscal 2020, the picture darkened for the company as well as the stock, which is now hitting lows not seen in 18 years, before BlackBerry’s ascendence as a mobile handset leader.
But the BlackBerry selloff may now be overplayed, according to investment bankers Bank of America Merrill Lynch, which on Monday raised its rating from “Underperform” to “Neutral” with a price target of $7.00.
“What’s interesting in the upgrade is where that potential could be unlocked,” said BNN Bloomberg’s Amber Kanwar, yesterday speaking of the BoA Merrill Lynch upgrade. “They note that two key parts of their business, Cylance and QNX, could be undervalued and could present strategic options.”
“They note that Cylance is a leader in this space, even as they compete with the likes of Crowdstrike and Carbon Black and Symantec. Crowdstrike trades at 12x sales and they think that Cylance could trade around a 5x multiple,” she said.
On BlackBerry’s connected systems QNX platform, BoA Merrill Lynch says that while the hype cycle has diminished there is no question that QNX is a leader in auto sector applications and could have value in terms of a strategic divestment.
Kanwar said, ultimately, BlackBerry’s current morass stems from a lack of execution.
“They’re facing the right markets in artificial intelligence and cybersecurity and the connected car, none of those markets are shrinking, and business are spending aggressively there, and while BlackBerry does have sales there and sometimes they’re growing above market, it is a story of not being able to execute. They should be having more growth, more customer wins than they actually are,” Kanwar said.
BlackBerry’s share price is currently down almost 22 per cent for 2019. On Tuesday, news broke that BlackBerry president and chief operating officer Bryan Palma has left the company after taking up the positions less than a year ago, citing a desire to pursue other opportunities.