Earnings Quality, Growth Concerns Sideline Sell-Side On BlackBerry

BlackBerry Ltd BB reported Wednesday ahead of the market open, beating forecasts in its fiscal third-quarter results. The company maintained its forward guidance for the fiscal 2018.

After rallying about 12 percent on Wednesday in reaction to the Q3 results, BlackBerry stock gave back some ground, trading down 1.73 percent at $11.96.

BlackBerry has added 60 percent year-to-date. 

BofA: Low-Quality Beat 

BlackBerry's third-quarter strength came from three areas — namely legacy handsets, legacy service access fees and IP Licensing — making it a low-quality beat, said Bank of America Merrill Lynch analyst Daniel Bartus. The deal with Teletry to sublicense the patent portfolio was a key driver that sent IP licensing revenues higher, and in turn provided a shot in the arm to overall results, Bartus said.

BlackBerry trades at a premium despite low growth prospects, according to BofA.  

The firm reiterated its Underperform rating and $8 price target on BlackBerry.  

Canaccord: QNX Revenue A Potential Catalyst 

Terming the results as solid, Canaccord Genuity's Michael Walkley said he's optimistic regarding the BlackBerry Technology Solutions, or BTS, segment over the next several years, with QNX revenue potentially accelerating in the second half of 2019 and beyond.

"In fact, we view potential acquisitions with its strong balance sheet as the most likely way BlackBerry can create shareholder value and augment revenue and earnings growth longer term," Walkely said.

Canaccord Genuity maintained a Hold rating and $11 price target on BlackBerry. 

See also: Japan Deal Prompts Vetr Crowd To Upgrade BlackBerry To Buy

Deutsche Bank: Sustainable Upside May Be Delayed To 2020

BlackBerry's third-quarter results were better-than-feared thanks to upside in areas such as the software and services business, licensing, and IP, said Deutsche Bank Securities analyst Vijay Bhagavath.

"While we are constructive on BB's order book and recent design wins in self-driving auto tech and radar, [the] potential impact to our modeled view and consensus expectations, in terms of sustainable upside, is likely a [fiscal 2020 or later] event," according to Deutsche Bank. 

Conservatively, the firm estimates 8-percent year-over-year growth in the non-GAAP software and services business in 2019.

Deutsche Bank maintained a Hold rating on the shares of BlackBerry and increased the price target from $8.25 to $9.

BMO: No Inflection Point For Growth 

BMO Capital Markets analyst Tim Long said BlackBerry's quarterly results were solid, with better revenues in both software and legacy businesses. But growth performance in the underlying segments wasn't encouraging, Long said — and the analyst said he doesn't see any significant near-term catalysts.

Soft handset software licensing revenues and a stagnant enterprise segment puts all the pressure on automotive and asset tracking opportunities, where revenue inflection is not yet visible, according to BMO Capital Markets. 

BMO has a Market Perform on BlackBerry and raised the price target from $10 to $12.

Shares Offer Balanced Risk/Reward

Imperial Capital's Michael Kim said BlackBerry shares offer balanced risk/reward at recent levels. The company is making continued progress on its pivots to software and services, Kim said, adding that he expects continued penetration of embedded software.

"We believe investors could become constructive on the stock with higher visibility on the company's growth initiatives and core business segments," the analyst said. 

Imperial Capital has an In-Line rating on BlackBerry with a one-year price target of $10. 

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