Robert W. Baird & Co. analysts William V. Power, CFA, Steven J. Beckert, Andrew T. Flis Reiterate Neutral rating with a $7 target price on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB).

blackberry Ltd BBRY BB

Return to enterprise roots

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has sharpened its focus on four key areas, which analysts at Baird applaud. However, they fear it still faces an uphill battle in devices, with potential revenue from BES10 and software/services also uncertain. Lowering their estimates further following a weaker FQ3. Analysts highlight the roughly $4 per share in net cash, though note cash burn could continue through the next year. Reiterate firm’s Neutral rating with a $7 target price.

BlackBerry Guidance highlights

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) plans to maintain a solid cash balance and turn cash flow break-even by the end of F15.

Re-aligned focus

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) plans to focus on four key pillars: Enterprise (BES10), BBM (investment mode), QNX (auto + new areas) and Devices (via new Foxconn Technology Co., Ltd. (TPE:2354) partnership).

Foxconn outsourcing positive

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) seems to have de-risked its hardware exposure by outsourcing key functions to Foxconn Technology Co., Ltd. (TPE:2354).

Still in the enterprise device game

However, it plans to continue producing enterprise-grade devices for developed markets, an area of intense competition, to help sustain its software and services opportunity.

BES10 trajectory unclear

That ability to get paid for its BES10 installations remains unclear, particulary with BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) subscribers declining by low double digits sequentially each quarter.

BBM in investment mode

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) plans to nurture BBM adoption, with long-term monetization perhaps resting with enterprise messaging.

Cash solid

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) ended FQ3 with $3.2 billion of cash and equivalents or close to $4 per share of net cash, though analysts expect continued cash burn through the next year. The company appears to have burned close to $700 million of cash in the quarter.

Lower forecasts

FQ4. Lowering revenue and smartphone shipments from $1.19 billion and 2.0 million to $1.03 billion and 1.65 million.

FY’15. Lowering revenue and smartphone shipments from $4.4 billion and 7.7 million to $3.6 billion and 7.2 million.

BlackBerry Valuation update

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is currently trading at 0.7x our FY’15 revenue forecast vs. the peer group at 0.3-1.0x. Analysts’ revised $7 target price is based on 0.7x our FY’15 revenue forecast.

FQ3 Summary

Revenue and smartphone shipments of $1.2 billion and 1.9 million missed analysts’ $1.3 billion and 2.4 million forecasts and consensus of $1.7 billion and 3.6 million.