BlackBerry (BBRY) Margins Will Trigger Broad Increases in Consensus Forecasts - Nomura

March 28, 2013 9:41 AM EDT
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Nomura Securities analyst Stuart Jeffrey said he expects BlackBerry's (NASDAQ: BBRY) better-than-expected Q4 profitability to trigger broad increases in consensus forecasts, driven by higher margin expectations. Still, the analyst maintained a Neutral rating and downside $10 price target at this point.

Some key highlights to the quarter, according to the analyst:
  • 5% miss to consensus revenues
  • 910bp beat to consensus gross margin
  • In line opex
  • $0.22 EPS vs. loss of $0.30 forecast by consensus
  • Cash inflow of $219mn vs. our forecast of an outflow of $236mn
  • 3mn lost subscribers vs. expectations of a 1mn loss
  • Guidance calls for break-even in fiscal Q1 vs. consensus expectations of a $1.15bn loss from operations

    Jeffrey said the main highlight was the 40% gross margin. "This suggests that hardware gross margins rose from around -2% in fiscal Q3 to 11% in fiscal Q4," he said. "It's not clear how much of this was due to the Z10 being priced for a healthy gross margin and how much was BlackBerry ending its excess promotions of BB7 devices."

    The subscriber losses imply margins gain in BB7 as well as BB10, he said. "The loss of 3mn subscribers suggests that BlackBerry raised hardware pricing across the board. This may mitigate the scope for margin upside in future quarters. If all the upside had been BB10 driven, then the launch of the Z10 late in the quarter might have promised a material further improvement in gross margin in fiscal Q1. Guidance also implies that there is no material further improvement in gross margin. Nevertheless, we expect investors to positively greet signs that management is no longer selling hardware below cost."

    For an analyst ratings summary and ratings history on BlackBerry click here. For more ratings news on BlackBerry click here.

    Shares of BlackBerry are up 4.35 percent early Thursday to $15.20.

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