Wednesday, May 15, 2019

A Current AIM International Equity Holding: BlackBerry Limited (BB, $9.26): “This Fruit has Ripened – Great Start to 2019” By: Alex Penkwitz, AIM Student at Marquette University


BlackBerry Limited (BB, $9.26): “This Fruit has Ripened – Great Start to 2019”
By: Alex Penkwitz, AIM Student at Marquette University


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary:

BlackBerry Limited (NYSE: BB) engages in the provision of enterprise software and services, which focuses on securing and managing Internet of Things endpoints. BlackBerry Limited was founded in 1984 and is headquartered in Waterloo, Canada.

• BB reported strong Q4 FY19 numbers. EPS and operating margins were two metrics that were extremely impressive for the company in the quarter.

• BB finally completed their acquisition of Cylance, a next-generation endpoint security technology.

• BB received notable orders in both their Financial Services and Government verticals, driving revenue growth for the quarter.

Key points: 

BlackBerry posted EPS of $0.24, nearly doubling their EPS from last year and exceeding expectations. The notable increase in EPS can be attributed to record high total software and services revenue. Their strong revenue growth displays that there is an increasing demand for their services, reassuring the positive directional movement in their business plan.

BB recently completed their acquisition of Cylance. This suggests that BB is “beefing up” their security business segment. The artificial intelligence and machine learning capabilities that Cylance brings to BB are synergistic. This will allow BB to move closer towards their long term vision for BlackBerry Spark becoming a secure communication platform for the internet of things.

Two business segments that drove growth for BB were Financial Services and Government. BB received over 400 orders from the Financial Services vertical alone, including customers such as Barclays Plc and Bank of Oman. In the Government vertical, the company secured orders from several notable customers such as U.S. Air Force, U.S. Army, and U.S. Navy. In addition, BB was chosen by NATO for the company’s secure voice solution.

What has the stock done lately?

Technology stocks got hit hard in Q4 2018 and BB’s price has seen these fluctuations. From late September to the end of December, BB saw a 35% price decrease, starting at $14.62 on September 28th and ending at $9.39 on December 31st. This is followed by an immediate bounce back of 23% up to February 15th to start Q1 of 2019.

Past Year Performance:

BB has decreased 9% in value over the past year. As I mentioned in the above section, the stock saw extreme declines during the month of October in 2018. The overall increase in value is due to the bounce back that the stock has seen in YTD 2019, as seen in the charts below.


Source: FactSet
My Takeaway:

When this stock was first pitched, its price was at $7.98 and the price target set on the stock was $11.76. That price target seems very achievable in the long run with the time horizon of the fund holdings being 2-5 years long. I expect to see BB continue to rise after the sharp decline in Q4 of 2018 to surpass this price target by the end of FY 2019.

Sources:

Factset
BlackBerry Limited (2018). Q4 2018 10-K. Retrieved from Factset online database.
BlackBerry Limited (2018). Q4 Earnings Call Transcript. Retrieved from FactSet online database.

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