One victim (or benefactor, depending on your point of view) of last month’s bull rush into shares of GameStop and others was BlackBerry Ltd. (NYSE: BB). The stock spiked to a 52-week high of nearly $29 after a 10-month stretch of trading at around $6.
The increase in the share price played out just as GameStop’s did. BlackBerry’s short interest totaled around 39.6 million shares at the end of December. By the end of January, that number had dropped to 20.4 million as short sellers were forced to cover their positions or face even bigger losses. More than 77 million shares traded hands on two days in late January, and the current 30-day average volume is more than 55 million shares, although average daily volume recently has fallen below a million shares traded per day.
There was, and still is, value in BlackBerry stock, just not at $13 a share, according to analyst T. Michael Walkley of Canaccord Genuity. On Tuesday, the firm lowered its rating on BlackBerry stock from Hold to Sell while raising its price target from $8 to $10.
Walkley increased his fiscal year 2023 price target multiple from around four times enterprise value to sales to five times. Even at that, “following recent unusual trading activity from a targeted short squeeze, the share price is above our increased price target, resulting in our downgrade” to Sell.
Canaccord Genuity believes that BlackBerry’s software security products and recovering sales of its QNX platform to the automotive market gradually will return the company to positive growth in 2021. The key word in the firm’s analysis is “gradual.”
For the 2021 fiscal year, which ends this month, Canaccord believes that BlackBerry will meet its expected revenue estimate of $950 million. For the first three quarters of the year, the company has posted revenue of $683 million with gross margins near 72%. But a $594 million noncash, goodwill impairment charge in the first quarter has generated a net loss for the first three quarters totaling $789 million.
Last December, BlackBerry announced a multiyear agreement with Amazon.com to develop and market a cloud-connected software platform for automobiles. BlackBerry’s QNX software is already in use by more than 175 million vehicles, and the company is rolling out a new intelligent vehicle platform, dubbed IVY, that it expects to have ready for model year 2023. Canaccord sees this as an opportunity that “can meaningfully increase software revenue per vehicle” as IVY scales up.
For the fourth quarter, consensus estimates call for earnings per share (EPS) of $0.03 on sales of $246.1 million. For the full 2021 fiscal year, analysts are looking for $0.07 in EPS and $943 million in revenue. BlackBerry stock trades at 72 times expected 2021 EPS and 84 times expected fiscal 2022 EPS.
In late December, both Scotiabank and RBC downgraded BlackBerry from Sector Perform to Underperform. RBC has a price target of $7.50 on the stock. Canaccord Genuity’s $10 price target is the highest.
BlackBerry stock traded down nearly 4% Tuesday morning, at $12.55 in a 52-week range of $2.70 to $28.77 and with a consensus price target of around $7.50.