Friday was a good day for BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY).
Shares went up 3.7% in mid-afternoon trading on the Toronto Stock Exchange after a Raymond James analyst upgraded the company from a market perform to outperform based on its switch from a hardware company to one focusing on software.
Analyst Steven Li told clients “stop worrying about hardware--only positives from here on. We think the narrative shifts to BlackBerry software.”
Software is a good business. BlackBerry has been focusing on recurring revenue, with 80% of the top line from that division now recurring. Growth is also strong, both organically and via acquisitions. And net margins are good too, compared to hardware which is a much tougher business. Advertising costs are much higher for hardware compared to software too.
Li also sees a number of short-term events that could help propel shares higher, including the company buying back some of its convertible debt or the company’s new DTEK50 model smartphone selling better than anticipated.
Since the market has all but given up on BlackBerry’s hardware division, even a modest showing by the new phone could be enough to propel shares higher. It could also flop and further seal BlackBerry’s fate as a software-only company, which would further be a positive.
BlackBerry’s target price was also raised by Li, from $8 (U.S.) to $10.50 (U.S.). That translates into a target price for Canadian investors of $13.60, a level shares haven’t seen since early 2015.
