BlackBerry (BBRY): Risk To Consensus Revenue Estimates - Wells Fargo
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Wells Fargo analyst, Maynard Um, reiterated his Market Perform rating on shares of BlackBerry (NASDAQ: BBRY) but thinks the street's revenue modeling is too agressive and margins are not high enough.
The analyst sees risk to Street’s $391MM revenue forecast (Wells Fargo: $371MM), due to lower hardware revenue ($118MM versus Street’s $153MM) on limited traction of DTEK50 (sales into non-carrier channels are recognized on sell-through).
However, he sees upside potential to Street EPS of -$0.05 (Wells Fargo: -$0.03) on higher gross margin (Wells Fargo: 59.1%, Street: 51.9%, guidance: around 50%) due to on-going benefits from the IP payment roll off in FQ2 and potentially better opex management.
SAF declines are the key headwind to Software transition story. SAF revs will continue to decline as BB7 users decrease while costs are relatively fixed, impacting gross margins. We expect the lower SAF profits will more than offset higher profits from Software with the crossover not expected until FQ3 2018.
No change to the valuation range of $7.25 to $8.00 based on a FY17 sum of the parts of 4.0x for Software plus net cash.
Shares of BlackBerry closed at $7.89 yesterday.
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