Why Analysts Just Will Not Get Behind BlackBerry

Just last Friday, the company reported its fiscal second-quarter financial results before the markets opened. The company had a net loss of $0.13 per share on $491 million in revenue. That compared to Thomson Reuters consensus estimates of a net loss of $0.09 per share on revenue of $610.99 million. In the same period of the previous year, the company posted a net loss of $0.02 per share and $916 million in revenue.

As a result, Credit Suisse sees the company faced with a difficult transition on multiple fronts and doubts its ability to integrate the acquisitions and ramp up the software business. The firm reiterated its $6 price target and adjusted its fiscal 2016 and fiscal 2017 EPS estimates to -$0.36 and -$0.34 from -$0.24 and -$0.29, respectively. At the same time, Credit Suisse expects to see continued pressure and forecasts fiscal 2016 revenues of $793 million, dropping to $434 million by fiscal 2017.

BlackBerry has become more aggressive on the merger and acquisition front, spending some $800 million on Movirtu, SecuSmart, WatchDox, AtHoc and Good Technology this year. Credit Suisse questions the quality of some of the acquisitions, especially Good Technology, which could create significant integration risk.

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Credit Suisse gave its valuation of BlackBerry as follows:

We see inherent challenges in turning around the services stream, as well as the subscale loss making hardware business. Assuming shutting down the hardware business by the end of fiscal 2016 and winding down the services business by the end of fiscal 2017, we arrive at NAV of $3.2 billion ($6 per share), which suggests an approximate 10% downside from the current market price.

As for Wells Fargo, the investment bank believes that BlackBerry’s core business appears to be tracking behind expectations. Wells Fargo has a Market Perform rating for BlackBerry and lowered its valuation range to $6.50 to $7.10 from $7 to $8. At the same time, the fiscal 2016 EPS estimate of -$0.36 is unchanged, while the fiscal 2017 EPS is widened to -$0.17 from -$0.03.

While BlackBerry’s acquisitions should help it achieve its $500 million software revenue target, the investment bank believes sustained profitability is also predicated on handset success to which it believes there is low visibility. With fundamentals ostensibly tracking below expectations and guidance for next quarter suggesting a greater loss per share sequentially, Wells Fargo recommends investors wait on the sidelines until there is greater visibility to fundamental improvement and traction with its Priv handset.

Shares of BlackBerry pulled back 5% to $6.16 Monday morning. The stock has a 52-week trading range of $6.41 to $12.63.

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