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 (NYSE: 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.