BlackBerry (BBRY): Raising Valuation Range On Model Roll Forward, Still Cautious - Wells Fargo
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Wells Fargo analyst, Maynard Um, reiterated his Market Perform rating on shares of BlackBerry (NASDAQ: BBRY) but raised his valuation range to $7.80-$8.60 (from $7.25-$8.00) as he rolls the model forward to FY18.
Upside in the quarter was a result of lower D&A while SAF profit upside was offset by Software profit downside. BBRY made the right decision in shuttering its hardware business and focusing on becoming a software company but concerns now revolve around growth and visibility.
Software is expected to grow 30% this FY but the analyst thinks Street forecasts for $692MM in Software rev in FY17 have risk if not for the classification of royalty into the Software segment. He also thinks Street's F18 revenue of $848MM also seems aggressive even when accounting for the reclassification of royalty revenue (we forecast $800MM including royalties of $28MM). Software revenue and profits missed ests this quarter though management maintained FY guidance (resulting in a more back end loaded year).
The analyst raised FY17/Fy18 EPS ests to $0.01/-$0.04 from -$0.08/-$0.09. The key now is driving revenue growth and given limited visibility and the application of a 4x multiple on the Software business, there is no reason to upgrade.
Shares of BlackBerry closed at $8.33 yesterday.
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