BlackBerry wins price target raise at RBC

It’s not a panacea but the sale of its troubled Cylance unit may be a step towards something better for BlackBerry (BlackBerry Stock Quote, Chart, News, Analysts, Financials NYSE:BB) although there is a lot of work to be done.

So says RBC analyst Paul Treiber, who, as reported by the Globe and Mail December 17, maintained his “Sector Perform” rating while raising his price target on the stock from (US) $3.00 to $3.25.

On December 16, BB announced that Arctic Wolf, a Minnesota-based AI company would acquire Cylance for $160-million and 5.5-million shares of Arctic Wolf. Cylance, the California-based antivirus and malware firm that was acquired by BlackBerry in February of 2019 for $1.4-billion, soon ended up in the Canadian company’s doghouse, described by one analyst as a “a major drain on BlackBerry’s cybersecurity business”.

“Security has an operations and effectiveness problem and end point solutions alone have failed to live up to the outcomes they have promised for years,” Arctic Wolf CEO Nick Schneider said. “By incorporating Cylance’s end point security capabilities into our open-XDR Aurora platform, we will be addressing a rampant need for a truly unified, effective security operations that delivers better outcomes for customers. We believe we will be able to rapidly eliminate alert fatigue, reduce total risk exposure and help customers unlock further value with our warranty and insurability programs.”

The analyst says don’t expect a miracle to follow this development, as BlackBerry is still up against it.

“(Blackberry is) still seeing relatively slow growth, given its Secure Communications business and the soft auto market for BlackBerry’s IoT segment (i.e. QNX),” he wrote. “BlackBerry has not yet updated FY25 guidance to reflect the sale of Cylance. We estimate the divestiture to improve BlackBerry’s FY26 adj. EBITDA from $44-million (7-per-cent margin) to $73-million (14-per-cent margin), assuming BlackBerry does not re-invest the proceeds in its other businesses. Due to the sale of Cylance, our FY26 revenue estimates move from $623-million to $541-million.”

So is BlackBerry a cheap stock? Treiber broke it down from a valuation perspective.

“Adjusted for the sale of Cylance, we estimate that BlackBerry is trading at 3.2 times NTM [next 12-month] EV/S and 26 times NTM EV/EBITDA,” he added. “On a sum-of-the-parts basis, we estimate that the stock is valuing BlackBerry’s Secure Communications segment at 6.0 times NTM EV/EBITDA, below Cybersecurity peers at 32x, and BlackBerry’s IoT segment at 6.1 times NTM EV/S, below Auto Tech peers at 12 times. For both segments, we believe improved valuation requires improved growth; our outlook calls for 0-per-cent NTM growth at Secure Communications and 5-per-cent NTM growth at IoT.”