Does Stifled Growth, Pricey Valuation Offset Blackberry's IoT Upside?

BlackBerry Ltd (NASDAQ: BBRY)'s stock has been on fire in 2017, surging 34 percent year to date. But while the company has done a commendable job distancing itself from its legacy smartphone business and building its mobile security business, Bank of America analyst Daniel Bartus says there are still plenty of things to dislike about the stock.

According to Bartus, a sum-of-the-parts valuation of Blackberry’s software business reveals an unattractive valuation. In fact, Bartus listed five reasons Bank of America remains bearish on Blackberry:

1. The company likely won’t return to consistent profitability until 2020.
2. Blackberry’s Enterprise segment should be valued closer to Mobileiron Inc (NASDAQ: MOBL) at 1.2x enterprise value per share than more profitable names like Citrix Systems, Inc. (NASDAQ: CTXS) and VMware, Inc. (NYSE: VMW) at more than 4x EV/S.
3. Auto software QNX is a wildcard, but growth will likely be modest and Blackberry is at risk of losing market share.
4. Software/services growth in the most recent quarter was driven by shifting handset-related revenue.
5. A sum-of-the-parts analysis reveals fair market value roughly 17 percent below current market cap.

For Blackberry bulls, Bartus said there is potential for IP-related deals to provide a boost for the stock. In addition, with $1.7 billion in net cash, including cash left over from the QUALCOMM, Inc. (NASDAQ: QCOM) settlement, Bartus says Blackberry could choose to bump revenue growth via M&A.

“In our view, BlackBerry's low growth profile and participation in highly competitive markets pose risk to its long-term turnaround potential,” he concluded.

Bank of America maintains an Underperform rating on BlackBerry and an $8 price target for the stock.

At time of publication, shares of BlackBerry were down 3.02 percent at $9.32.

Related Link: BlackBerry Teams Up With Delphi For QNX Operating System

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