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Why Did BlackBerry Ltd. Surge Almost 15% Last Week?

Analysts are upgrading BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) stock, estimates are rising, and investors’ confidence in the company may be starting to recover, as we are seeing glimmers of hope. In other words, the risk associated with this name has come down.

Better-than-expected results

EPS came in above expectations in the fourth quarter of fiscal 2017 as revenue in the mobility services segment, which represents 27.6% of total revenue, was greater than expected. Revenue still declined 39% year over year, but at least this decline in revenue is lessening, so things are moving in the right direction.

Importantly, the company’s balance sheet has improved; as of the end of the quarter, the company had $1.4 billion in cash, cash equivalents, and short-term investments, and $591 million in long-term debt, which is less than half the long-term debt it had last year.

Let’s rewind to last quarter to compare the state of the company to its state now. BlackBerry was mired in uncertainty, as the company’s direction was still somewhat unclear, and the software market was (and still is) highly competitive. Revenue for the three months ended November 2016 fell 55% and 30% for the nine months ended November 2016. The company had $860 million in cash on the balance sheet, which was down from the prior quarter’s $957 million; $242 million of cash was used in operating activities.

Going forward, the company expects the software and services segment (representing 56% of total revenue) to increase roughly 15% next year, and consensus EPS estimates have come up slightly for next year as well.

A vote of confidence that is key to BlackBerry was the one given to them by Ford Motor Company (NYSE:F) when it signed a software deal to develop connected cars of the future.

Another Canadian company that is pursuing the automotive software market is Sierra Wireless, Inc. (TSX:SW)(NASDAQ:SWIR), which is now focused solely on the M2M business. Sierra is the opposite of BlackBerry in the sense that it is firing on all cylinders. Recent results came in way above expectations, the balance sheet is strong, and the company generates strong cash flows.

Bottom line

So, while this latest earnings report was positive in that it was not as bad as before and it offers some hope, shares are still very highly valued and uncertainty, while lessened, is still there. These shares would be very interesting at lower prices, but I can’t justify owning them at this price. My view is that the risk/reward relationship is still not attractive at this time.


36-Year Old CEO Bets Over $300 Million on 1 Stock

Iain Butler, Lead Adviser of Stock Advisor Canada, recommended this little tech darling to thousands of loyal members last March... and those that followed his advice are up 127.7% (they've already made 2X their money!).

Not to mention this tiny Eastern Ontario company has already been recommended by both Motley Fool co-founders, David and Tom Gardner, because of its amazing similarity to an "early stage" Amazon.

Find out why Tom Gardner was recently on BNN's Money Talk raving about this company, and how you can read all about it inside Stock Advisor Canada. Click here to unlock all the details about his Canadian rule breaker!

 

Fool contributor Karen Thomas has no position in any stocks mentioned. David Gardner owns shares of Ford and Sierra Wireless. The Motley Fool owns shares of Ford and Sierra Wireless.

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