BlackBerry is still a pass, says CIBC

CIBC analyst Todd Coupland has moved his rating on Canadian tech company BlackBerry (BlackBerry Stock Quote, Charts, News, Analysts, Financials TSX:BB) from “Underperformer” to “Neutral” in a recent report on the company.

BlackBerry stock has had a marvellous month of May so far, rising 38 per cent and pulling into the $7.00-$7.50 range where it had been last September before taking a dive. The stock remains down considerably over the past two years and is sitting at pre-pandemic levels.

BlackBerry has in the past lauded its transition from hardware mobile phone maker to software, cybersecurity and connected tech-maker. But the lack of consistent growth and clear path to better days ahead for its various businesses has been a drag on shares in recent years.

Coupland’s price target on BlackBerry is $6.50 per share, which at press time represented a projected one-year return of negative 9.2 per cent.

BlackBerry released on Wednesday its long-term financial targets, which included a total revenue guidance for its fiscal 2024 (year end February) of $665-$700 million compared to fiscal 2023’s realized $624 million and moving to fiscal 2025 at $880-$960 million. The guidance makes for a three-year CAGR of between 12 and 15 per cent.

The Company is targeting: an average 200+ basis points increase in non-GAAP gross margin per year to FY26; to deliver significant improvements in non-GAAP EPS loss and cash flow usage in FY24, and to achieve non-GAAP profitability in Q4 FY24; and to generate positive full-year non-GAAP EPS and cash flow beginning in FY25,” BlackBerry said in a press release.

On its cybersecurity business, BlackBerry said its total addressable market (TAM) for the endpoint security market is expected to grow at 15 per cent a year to 2026 and the TAM for the managed services business is expected to grow at 14 per cent per year to 2026. Total contract value billings for cyber in fiscal 2024 are expected in the range of $430-$480 million.

On its Internet of Things (IoT) business, BlackBerry said about 20 per cent of its QNX revenue is coming from development seats, 20 per cent from professional services and 60 per cent from production-based royalties.

“Given the strong year for new design wins in FY23 and the macroeconomic headwinds for production-based royalties, design phase revenues currently form a larger percentage of revenue relative to production phase revenue than the long-term average,” BlackBerry said.

“Production-based royalties have historically generated higher gross margins than design phase revenues, and therefore as they return towards the long-term average proportion of total IoT revenue, it is expected that gross margins for the IoT business unit will increase,” the company said.