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Feb. 16, 2021, 3:04 p.m. EST

BlackBerry stock is now a ‘sell’ at Canaccord, as price is too rich to justify ‘gradual’ improvement in fundamentals

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Tomi Kilgore

Shares of BlackBerry Ltd. sank Tuesday, after Canaccord Genuity analyst Michael Walkley recommended investors sell, as prices have rallied too much recently to justify the improvement seen in the company’s security software business.

Walkely said he believes BlackBerry has made positive strides integrating its Cylance artificial intelligence-based products to create a “compelling” cybersecurity platform. He expects a “gradual software and services recovery,” with revenue returning to positive growth this year as sales to the automotive market should improve.

BlackBerry reported in December fiscal third-quarter revenue that fell 20% from a year ago, and the current FactSet consensus calls for revenue for fiscal 2021, which ends this month, to fall 14.3%. But fiscal 2022 revenue is expected to rise 10.3%.

Based on his recovery view, Walkley raised his price target by 25%, to $10 from $8. But that new target is still 17.8% below current levels, and he cut his rating to sell, after being at hold for at least three years.

“[W]ith the volatility in the shares 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,” Walkley wrote in a note to clients.

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The U.S.-listed stock /zigman2/quotes/202784246/composite BB +0.78% /zigman2/quotes/206834662/delayed CA:BB +0.53% slumped 6.7% in afternoon trading. Although the stock has tumbled 51.6% since closing at a 9 1/2-year high of $25.10 on Jan. 27, it has still more than doubled (up 134.3%) over the past three months. In comparison, the ETFMG Prime Cyber Security exchange-traded fund /zigman2/quotes/207892345/composite HACK +1.60% has rallied 26.5% over the past three months and the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.33% has gained 8.5%.

Even though the stock has pulled back sharply from its “Reddit driven rally” to its January high, “our analysis leads us to believe the shares are still overvalued,” Walkley wrote.

And besides the recent short media-inspired volatility, Walkley noted that BlackBerry’s software business has been growing “much slower” than those of its security software competitors. So despite improving fundamentals, he believes the stock should trade at a discount to rivals until there is “more proof in execution” on the company’s product roadmap.

$ 9.10
+0.07 +0.78%
Volume: 6.90M
April 13, 2021 4:00p
P/E Ratio
Dividend Yield
Market Cap
$5.11 billion
Rev. per Employee
CA : Canada: Toronto
$ 11.41
+0.06 +0.53%
Volume: 2.46M
April 13, 2021 5:40p
P/E Ratio
Dividend Yield
Market Cap
$6.42 billion
Rev. per Employee
US : U.S.: NYSE Arca
$ 57.18
+0.90 +1.60%
Volume: 429,977
April 13, 2021 4:00p
+13.60 +0.33%
Volume: 2.06B
April 13, 2021 5:15p

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