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Blackberry Downgrade Sends Shares Spinning

Blackberry (TSX:BB,NASDAQ:BBRY) shares were off yesterday after Sanford Bernstein downgraded the stock to “Market Perform” and slapped it with a $15 target.  This was down from the previous target of $22.

Sell side analysts can often times be ignored as their “ratings” and “targets” don’t typically hold much water.  However, the Bernstein analyst that covers Blackberry has been right far more often than wrong and therefore, his word carries a lot of weight.

The downgrade is more of a short-term call than anything.  With Blackberry Live now out of the way, he sees no apparent catalysts coming in the next 6 months.

In addition, consensus expectations for Blackberry have lifted dramatically, increasing the risk that the company doesn’t measure up.  3 months ago, expectations were for Blackberry to lose money in fiscal 2014.  A profit is now expected.

At its current price, Blackberry’s stock appears to be nicely balancing the probability of either missing or exceeding these elevated expectations.  He sees the stock falling to $10 if the company comes up short, or moving into the $20-25 range if expectations are exceeded.

More than just a target price

Yesterday’s report also contained a laundry list of items on why Blackberry makes a bad short.  Reasons included:

  • A continuation of new product launch momentum
  • Pent up demand for new products
  • Steady low end demand
  • The evolution of BB’s service model is potentially misunderstood

Shorts are of course betting that none of these items matter and at some point, Blackberry will add to the trash heap of formerly high-flying Canadian technology companies.

Foolish Takeaway

Blackberry is a polarizing stock, however, much of what gets bantered about is largely based on opinion and not hard numbers.  Until more time passes with its new product line-up in the market, it’s impossible to know with any degree of certainty what the future might hold for this company.

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Fool contributor Iain Butler does not own shares in any of the companies mentioned at this time.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

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