RIDING HIGH
TRAILER TRACKING PRODUCT COULD HELP DRIVE BLACKBERRY SHARES TO $ 45, ANALYST SAYS.
BlackBerry Ltd. shares briefly hit a two- year peak this week after a particularly bullish analyst predicted growth in its auto divisions could quadruple its stock price in three years.
The auto segments Radar and QNX, responsible for trailer tracking in the trucking industry and automobile software respectively, have the “potential to materially boost revenue,” Macquarie analyst Gus Papageorgiou wrote in note late Monday, predicting the stock price could go up to US$ 45 by 2020. His 12- month price target is US$11.80.
“We readily admit, and actively highlight to investors, that there are considerable risks here,” he wrote, but noted the downside is only US$ 8.30 compared to an upside north of US$ 40. “We believe the risk/return profile is squarely in investors’ favour.”
After rising around 6 per cent on Tuesday to $ 10.19 — its first trip to double digits in U. S. dollars since May 2015, the stock slipped to $ 10.10 by close on Wednesday on the Nasdaq stock exchange.
Papageorgiou, who has covered the company for more than 15 years, wrote that one early Radar customer was able to cut expensive trucks from its fleet thanks to the software. He predicted Radar could have 1 million units in service for $ 20 per month.
As for QNX, which already captures more than half of the “infotainment” software market in vehicles, he estimates it could expand its product offering to earn US$5 or more per vehicle up from US$1.50 per vehicle. To quadruple the stock price, he calculates QNX would have to be deployed in 111 million units from the current 60 million.
He also wrote that BlackBerry is working with luxury auto makers Range Rover and Aston Martin to develop a security service that can remotely scan vehicles for viruses. This would enable drivers to pull over if they face critical danger from hackers, an increasing risk in the connected car environment. ( Spokespeople declined to comment on the existence of the service.) His calculations assume this service would cost US$ 7. 50 per month and be deployed in 10 million cars.
Risks to this rosy scenario include competition for Radar and QNX from major players such as Microsoft and Google, he wrote, “much like the smartphone market brought in Apple and Google.”
Financial analysts typically avoid commenting outside of their own research notes. But the Macquarie report stands out as exceptionally bullish in an environment where some firms have stopped covering BlackBerry altogether.
Wells Fargo analyst Maynard Um sees a long- term opportunity in BlackBerry given its legacy in the security and its ability to apply it to the Internet of Things such as cars, trailers, planes and sensors.
But he maintains a price range of US$7 to $8.
“While we maintain our view that BlackBerry has the potential to be a compelling long-term story if it executes, we think the company is still early on in its journey and limited visibility today keeps us on the sidelines,” Um wrote in a note to clients in early April.
That said, Um also believes that interest in QNX auto assets may limit some downside risk.
Raymond James analyst Steven Li is also bullish on the company’s software only model. He raised his target to US$ 10.50 and upgraded the stock to outperform last August given recurring revenue in the software business.