Analysis: Auto Business Prospects Not Enough To Breathe Life Back Into BlackBerry

BlackBerry Ltd BBRY shares are up 32 percent in 2017 as investors have cheered the company’s transition from hardware to software, its focus on mobile security, its improving balance sheet and its positioning in the next-generation auto industry.

However, without a positive catalyst ahead for the stock in the near future, Goldman Sachs has reinstated a Sell rating on BlackBerry stock, which analyst Gabriela Borges sees as fundamentally overvalued.

Goldman estimates BlackBerry’s auto business is currently valued at a bloated 13 to 17 times revenue and sees very little near-term growth potential in the business. Borges said BlackBerry investors can expect a meaningful tailwind from the auto business starting in 2019.

In the meantime, Borges said the company will have difficulty hitting its earnings targets in the second half of the year as enterprise mobility competition from Citrix Systems, Inc. CTXS, VMware, Inc. VMW and Microsoft Corporation MSFT heats up.

“Our industry conversations suggest Citrix, VMWare and Microsoft are aggressively bundling EMM into broader suites, utilizing their much bigger footprints in enterprise software,” Borges wrote.

Related Link: Software And Services Slump Plagues BlackBerry In Q1

In addition, she said the auto business is so new that there is little visibility for BlackBerry shareholders at this point.

Barring a buyout, which Borges said is more likely following the company’s balance sheet improvements, Goldman sees downside ahead for the stock in the second half of the year. The firm is 3 percent below consensus estimates for fiscal 2018 revenue and expects just 8 percent growth in software and services in the second half of the year compared to Wall Street consensus estimates of 22 percent growth.

Goldman now has an $8.50 price target for BlackBerry stock. Shares were down about 4 percent at $9.07 in early Monday trade.