Where has all the love gone for BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB)?
With the stock hanging around all-time lows investors appear to have deserted the Canadian tech veteran for greener pastures. Too bad, says fund manager John Zechner, because there’s plenty of positives to the name.
BlackBerry’s transformation from hardware to software was the talk of the town a couple of years ago, but patience has worn thin this year with a company that seems to be underperforming, causing investors to wonder if the company’s turnaround will bear fruit in the end.
Granted, CEO John Chen has guided the business into the growth-oriented sectors of cybersecurity and IoT technology but so far the results have failed to impress, with the stock now down 26 per cent for the year and down more than 50 per cent over the past two years.
But the newly imagined company has a lot going for it, says Zechner, chairman and founder of J. Zechner Associates, who singled out BlackBerry as one of his top picks on BNN Bloomberg on Tuesday.
“I can’t believe I actually put this one [in my Top Picks], but you know what? You look at this stock and this company and John Chen has done one of the most unbelievable jobs, doing a turnaround in technology…”
“I can’t believe I actually put this one [in my Top Picks], but you know what? You look at this stock and this company and John Chen has done one of the most unbelievable jobs, doing a turnaround in technology,” said Zechner.
“When you think of what was there when he came in, basically a smartphone manufacturer, a business that was dying and is nonexistent now. He’s completely migrating them to an encryption-based software company, cybersolutions and so strong in encrypted software in general, security software and embedded systems on the Internet of Things and what they’re doing with QNX in terms of the automobile — this is a fantastic migration,” he says.
Ahead of BlackBerry’s fiscal third quarter 2020 due next week, the company had posted revenue up 22 per cent to $261 million in its Q2, delivered in September, with a net loss of $44 million. Analysts had expected revenue of $266 million. (All figures in US dollars unless where noted otherwise.)
Management had guided for softer results going forward from its enterprise software and services segment, as well, causing a drop in the stock from the C$9.00 per share level to the C$7.00 range where it has been languishing over the past three months.
But Zechner insists the company’s fundamentals are worth a second look.
“They’ve been generating net cash, they’ve kept cash on the balance sheet, and yet through all of that the stock is trading back at almost an all-time low,” Zechner said.
“When you’re doing this migration it’s hard. Your hardware business is decreasing and your software, even if it’s growing at 100 per cent a year, it’s not offsetting the decrease in the other bigger piece. Now, this piece has gone to zero and the other is growing at about 20 per cent plus,” he says.
“I think that there may be some execution issues in the short term [but] they’ve positioned themselves so well to be the intel-inside version of security software, and I look at the valuation of other companies in the sector and they’re far, far in excess of where BlackBerry is,” he says. “The balance sheet is strong, you’ve still got [Fairfax CEO Prem Watsa] on the side. It’s a good shareholder base, good cash generation, strong management and cheap.”