The Street Debates BlackBerry's Q3 Earnings

BlackBerry Ltd BB reported Thursday its third-quarter results, which came in ahead of expectations.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Bank Of America's Daniel Bartus maintains an Underperform rating on BlackBerry with a price target lowered from $9 to $8.50.
• MKM Partners' Michael Genovese maintains at Neutral, fair value estimate lowered from $10.50 to $8.50.
• RBC Capital Markets' Paul Treiber maintains at Sector Perform, price target lowered from $11 to $10.
• BMO Capital Markets' Tim Long maintains at Market Perform, unchanged $11 price target.

Shares traded down 6.3 percent to $7.08 Friday morning.

Bank Of America: No Change To Thesis

BlackBerry's top-and-bottom line earnings beat mostly came from strong IP Licensing revenue, which came in at $68 million versus the Street's estimate of $56 million, Bartus said in a note. A lower operating expense base and in-line gross margins helped contribute to the earnings beat.

BlackBerry's report marks the sixth consecutive quarter of coming in ahead of expectations, but this isn't sufficient to lift a bearish stance on the stock. Shares of BlackBerry remain "full" at current levels even when considering the 30 percent decline in 2018 as the stock is trading at around three times calendar year 2019 EV/Sales, which is in-line with comparable peers.

MKM: Good Execution But Catalysts Are Years Away

BlackBerry's earnings report was highlighted by Software and Services revenue rising 10 percent year-over-year although bookings growth only rose by a single digit, Genovese said.

Overall, the company continues to execute well but any notable inflection point from next-generation technologies like ADAS and Lidar are still at least two to three years away. As such, "patience will be required" for these markets to develop over time.

RBC: Investor Focus Shift To Cylance

Exiting the print, Treiber said investor focus will now shift towards the Cylance pending acquisition. The timing of the acquisition announcement coincides with "reduced investor sentiment" for cyber security stocks which by default now weighs on BlackBerry's stock.

The acquisition also lowers BlackBerry's net cash per share from $3.39 to 93 cents, which Treiber said takes away some downside protection for the stock. As such volatility in BlackBerry's stock could increase in the coming quarters due to changes in investor sentiment related to future growth.

BMO: What Drove The Quarter

BlackBerry's beat came mostly from higher volumes in Licensing/IP, lower SG&A expenses and gross margin contributions, Long said in a research report. Any declines in Enterprise Software from 606 account changes are abating.

Related Link:

The Street Reacts To BlackBerry's Cylance Acquisition

Earnings Quality, Growth Concerns Sideline Sell-Side On BlackBerry

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