5 Reasons Why BofA Is A BlackBerry Bear

Bank of America Merrill Lynch said Friday that it's identified five new risks that reinforce the BlackBerry Ltd BB bear case. 

The Analyst

Daniel Bartus maintains an Underperform rating on BlackBerry with an unchanged $8.50 price target.

The Thesis

Bank of America's five reasons to remain "cautious" on BlackBerry are as follows, Bartus said in a note: 

  • BlackBerry has beaten Street estimates in each of the past seven quarterly earnings reports, but the stock is still down 6 percent since June 2017. This may likely be the result of investors identifying "weakness under the surface" or outperformance versus "exceptionally low" expectations.
  • The company's IP licensing segment performed well throughout fiscal 2018 and fiscal 2019, but has likely hit a peak. Sales likely hit a high of $286 million in fiscal 2019 and will move lower toward a recurring annual base of $170 million.
  • BlackBerry's core enterprise software and services business was weak in fiscal 2019. The segment missed expectations in the most recent earnings report by a "wide margin" and looks even poorer excluding a $3-million revenue contribution from Cylance.
  • The 2018 acquisition of Cylance will likely to be dilutive to Blackberry's results through fiscal 2021. The acquired business could increase the total cost basis by $300 million, while the unit saw its growth decelerate from 90 percent for the 12-month period ending April 2018 to mid-30 percent.
  • Shares of BlackBerry are trading at 4.2 times BofA's 2020 estimated EV/sales, which is already a premium to the peer average group at 3.1 times.

Price Action

BlackBerry shares were down 0.48 percent at $9.28 at the time of publication Friday. 

Related Links:

What Analysts Think Of BlackBerry's Turnaround

Takeaways From Canaccord's Chat With BlackBerry Management

Photo courtesy of BlackBerry. 

Posted In: Bank of AmericaCylanceDaniel BartusAnalyst ColorPrice TargetReiterationAnalyst Ratings