BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) shares have declined 25% from highs of over $15 hit three months ago, as first-quarter results reported software revenue growth that was well below expectations. In fact, total software revenue increased a mere 2% versus the company’s target growth of 10-15% for the year.
This would mean that should the company have a chance to meet its targeted growth rate, software sales would have to ramp up significantly the rest of the year, so this has placed doubt as to whether or not BlackBerry’s new focus is making enough traction.
Here are a few key points to keep in mind:
Ample cash
The company has $2.6 billion in cash, which will serve to help BlackBerry continue to gain traction in refocusing its business.
We can expect the company to use this cash to buy back shares to offset dilution from its convertible debentures, and we can expect an acquisition, which would increase its market share, provide new technology, and/or strengthen its distribution.
Negative cash flow
Excluding the $940 million Qualcomm arbitration settlement, BlackBerry would have reported negative $80 million in cash flow compared to $19 million in the fourth quarter.
While I believe that BlackBerry’s new focus on software solutions for the automotive and healthcare industries has real potential, it appears that this shift is not as easy to execute as the company would have hoped.
While a major accretive acquisition could be a game changer, with the company still struggling to meet expectations, I would take a wait and see approach on the shares.
BlackBerry reports second-quarter results on September 28.
A different option
Altagas Ltd. (TSX:ALA) is another name whose shares have gone lower this year, and they have a year-to-date return of -19%.
This is despite the fact that second-quarter results were better than expected, as the company is enjoying strong momentum both operationally and financially.
Management is expecting a respectable low double-digit growth rate in normalized EBITDA and high single-digit growth in normalized funds from operations.
Investor sentiment on utilities has been poor, and the company’s recent WGL acquisition has left investors with many questions. However, this acquisition will add high-quality assets and give the company a significant footprint in the U.S. and Canada.
The deal is accretive to earnings and cash flow and brings with it a plethora of growth opportunities. The company has identified $5 billion in immediate growth opportunities plus an additional $2 billion in opportunities through to 2021.
And investors can expect a dividend increase this year for an 8-10% growth rate in dividends. It’s really good for investors seeking income. The current dividend yield is 7.42%.
