Imperial Concerned About Blackberry's Software Shift, Raises Target To $8.50

BlackBerry Ltd BBRY reported its FQ2 2017 results, with EPS beating expectations but the revenue coming in below the consensus and the estimate. The company also announced the appointment of a new CFO and that it intended to stop in-house hardware development.

Imperial Capital’s Michael Kim maintained an In-Line rating on the company, while raising the price target from $7.00 to $8.50.

Outsourcing Hardware

“BBRY’s decision to cease internal hardware development and outsource to partners represents a key strategic shift which will transition the company into a focused software and services vendor with improved margin and cash flow profile,” Kim mentioned.

However, the analyst also stated that there was considerable uncertainty regarding new licensing agreements, end user demand for new devices based on BlackBerry’s secure Android software and steady-state royalty rates.

Related Link: Analysts Remain Mostly Bearish On BlackBerry Following Q2 Earnings

Need More Visibility

Higher visibility was awaited into the growth of the company’s key software offerings, especially enterprise mobility, asset tracking, crisis communications and embedded systems.

BlackBerry announced that it had appointed a new CFO, effective October 1, 2016. The new CFO had previously worked closely with CEO John Chen.

“At recent levels, we think BBRY shares offer balanced risk/reward and we would seek a more attractive entry point,” Kim stated.

EPS Guidance Raised

Management reaffirmed FY 2017 guidance, on September 28, for its software and services business, while continuing to expect revenue growth of 30 percent.

The adjusted EPS guidance for FY 2017 was raised from ($0.15) to ($0.50)-$0.00. Kim believes that the company is benefitting from healthier customer adoption of its software suite, which grew sequentially in FQ2 2017.

“We note BBRY achieved its first commercial deployment of Radar and first commercial customer for connected cars. We look for potential upside from expanding market adoption following these initial reference customers,” the analyst added.

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