BlackBerry: The Bear Case, The Bull Case And My Case

| About: BlackBerry Ltd. (BB)
This article is now exclusive for PRO subscribers.

I am quite confused with BlackBerry's (BBRY) Q1 quarterly analyst estimates. Some are quite bullish and some are very bearish. The target price for BlackBerry's shares range from $8 to $24 a share. That's a very broad range. And with estimates like these, one has to wonder if sell side analyst reports have any value whatsoever. I mean, if all these guys are so smart, why is it they all have so many different targets? Obviously most of them will turn out to be wrong.

The consensus estimate of analysts polled by Thomson Reuters calls for earnings of 6 cents per share minus items, vs. a loss of 35 cents for the same quarter a year earlier. Revenue is seen rising 20% to $3.36 billion, a reverse after seven straight quarters of revenue declines.

Here is a partial list of what analysts think. I think we better keep notes, so the next time we see a rating on BlackBerry, we know which analyst to listen to and who to ignore.

The Bulls

Morgan Stanley's Ehud Gelblum has an overweight rating and a $22 price target and thinks sales of recently introduced BB10-based smartphones are tracking ahead of his prior expectation.

Scotia Capital's Gus Papageorgiou has an outperform rating on BlackBerry with a $22.40 price target. He thinks BB10 devices will lead to improved margins and is modeling revenue well above consensus, at $4.1 billion, with EPS at 72 cents, based on improved gross margin of 44%, way up from 28% a year earlier and 40% in fiscal Q4. In fact for Q2 Papageorgiou is modeling 5.5 million BB10 units sales helped by the forthcoming lower-priced Q5. He also thinks EPS for Q2 will come in at $1.28 per share (I like this guy).

Mark Sue of RBC Capital Markets has a Sector Perform rating on BlackBerry with an $18 price target. Sue is modeling $3.5 billion in revenue and a 9 cents profit on sales of perhaps 3 million BB10 units.

Peter Misek is also very bullish, reiterating a buy rating and a $22 price target. Misek thinks BlackBerry will blow away Street consensus, perhaps delivering $4.1 billion in revenue and 50 cents profit per share, versus the current consensus of $3.39 billion and a 5-cent profit.

The Bears

National Bank Financial's Kris Thompson rates BlackBerry with an underperform rating and a $10 price target. Surprising enough, he is projecting $3.9 billion in revenue and a one-cent profit, with sales of perhaps 8.2 million devices with about 4 million BB10 units.

Citigroup's Jim Suva has a Sell rating with a $10 price target on BlackBerry, projecting $3.31 billion in sales and no profit at all (break even). Suva is modeling 7.25 million smartphone units including 3.25 million BB10 units. He also admits that because of the huge number of shorted shares, there is a possibility of a short squeeze given an upside surprise.

Cowen & Co's Matthew Hoffman reiterates his underperform rating and has a $9 price target on BlackBerry shares, projecting $3.3 billion in sales. His full year outlook calls for $11.93 billion in sales and a 25-cent loss per share.

Gelblum is modeling total revenue of $3.09 billion, below the consensus for $3.38 billion, and EPS of 2 cents, down from his prior estimate of $3.38 billion and 5 cents a share profit. Gelblum raised his BB10 unit shipment assumption to 3.5 million units from a prior 3 million, writing that the Q10 is "off to a good start."

Credit Suisse's Kulbinder Garcha has an underperform rating with a price target of $10 a share and is modeling revenue of $3.18 billion and EPS of 13 cents (above consensus), however Garcha doesn't believe BlackBerry will be able to sustain those sales and profits in the next several quarters.

My take

Whatever BlackBerry announces before the market open on Friday, what is important for longer-term minded shareholders to realize is that BlackBerry is basically a whole new company and has almost nothing to do with the BlackBerry of yesteryear.

Besides the current lineup of BB10 devices, BlackBerry will be rolling out several more devices over the next several months. Only when the entire lineup of devices is rolled out, only then will we have a clear picture of the company's possibilities and its long-term potential. We will not have the full picture on Friday.

Longer term, I expect this company to fully come back from the dead to its former glory status. The reason for this is simple. It has a unique ecosystem and will carve its own little niche in the space. BlackBerry has nothing to fear from anyone except itself. It is not threatened by Google (NASDAQ:GOOG), or Apple (NASDAQ:AAPL) or anyone. As long as it has something different to offer and stand out, it will prevail and do just fine (the same applies to almost any company).

Once again, it is to my surprise that short interest in BlackBerry shares rose once again, and now total about 182 million. Even the most bearish analysts don't have a price target that low, so one can expect to make any money by shorting BlackBerry. What are short sellers expecting to make is really beyond me.

However, I really don't like going against short sellers, because I have great respect for them. But as much as I have tried to figure out what might be in their minds, I have not been able to come to any logical conclusion for their logic. Unless we get a disastrous quarterly report on Friday, I think the company will easily beat analyst expectations.

The fact that the stock has not crashed as a result of all these shares being sold short is a good sign. And if BlackBerry's results on Friday produce a positive surprise, I am curious as to how all these shorted shares will unwind and at what price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.