Morgan Stanley Upgrades BlackBerry To Equal-Weight, Notes Company Has 'Flexibility With Cash'

In a report published Tuesday, Morgan Stanley analyst James Faucette upgraded shares of

to Equal-weight from Under-weight with an unchanged $7 price target as the company has "flexibility with cash" and an opportunity for spending cuts that "create value." Faucette continued that his upgrade to Equal-weight is not due to an improving business environment as there is "no evidence" of a turnaround. However, BlackBerry's current cash balance is worth $3.50 to $3.75 per share and has actually been growing over the past few quarters through operating expenditure cuts, ODM deals, tax refunds, asset sales and IP licensing sales. "While many one-time benefits the company could pull forward (e.g. asset sales, licensing) has been realized, we believe the company still has significant opportunity to add to that cash balance through headcount reductions or other reallocation of resources," Faucette wrote. "It is reported that the company recently underwent a reorganization; while acknowledging, the company did not disclose headcount involved." Faucette also noted that BlackBerry is "on track" to building a $300 million a year software business stemming from four software acquisitions over the past year. The analyst acknowledged that "it is not unreasonable" for the business to eventually generate $400 million in revenue and a 4-5x revenue software multiple derives a $3 to $3.50 per share value. However, Faucette stated that a $400 million revenue stream is "far short" of the $600 million software/messaging target BlackBerry put out as its target during their Analyst Day presentation in November 2014. Bottom line, BlackBerry's growing cash balance represents over half of the stock's market cap which "outweighs poor business fundamentals."