Market Overreacting to Blackberry’s Good News
We continue to recommend a wider margin of safety before allocating capital to this no-moat and very high uncertainty name.
BlackBerry (BBRY) reported better-than-expected fiscal second quarter results with strength in licensing revenue partially offset by slow growth in enterprise software and an expected decline in mobility and service access fee, or SAF. Gross margin widened for the second consecutive quarter, helped by solid top-line growth in overall software and services. However, the lack of growth in enterprise software revenue, which makes up more than 40% of the software and services segment, is indicative of what we view to be a very competitive enterprise mobility management market, and supports our no-moat rating of BlackBerry. With the firm outperforming expectations during the quarter and management’s latest guidance for fiscal 2018, we adjusted our estimates, which did not change our $9.50 per share BlackBerry fair value estimate. While BlackBerry shares are up over 13% in reaction to second-quarter results, they remain in 3-star territory. We continue to recommend a wider margin of safety before allocating capital to this no-moat and very high uncertainty name.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.