BlackBerry’s massive cash reserve may help the stock in the short-term, but the Canadian firm faces deeper fundamental issues despite a shift in focus toward software, believes Morgan Stanley analyst James Faucette. On this basis, Faucette upgraded his rating on the stock but maintained his price target.

BlackBerry Lacks Proof For 'Fundamental Turnaround': Analyst

BlackBerry upgraded but price target maintained

On Tuesday, BlackBerry stock closed up 7.1% at $7.80 following an upgrade from Morgan Stanley to Equal-weight from Underweight. The analyst is bullish on the company’s cash pile and cost-cutting plans. The company’s cash balance is around $3.50 to $3.75 a share, which is more than half of its current share price, the analyst noted. At the end of the May quarter, the company had cash and short-term investments of $3.3 billion, according to FactSet.

BlackBerry’s licensing sales and the “opportunity” to push its cash further with layoffs, were the primary reasons for the upgrade from Morgan Stanley. Though Morgan Stanley upped its rating, it maintained its price target of $7, citing a lack of evidence to support a “fundamental business turnaround.” BlackBerry’s current stock price is in sharp contrast to its all-time high of $147.55 hit in June 2008.

“Our upgrade to equal-weight is not due to improving business fundamentals or a software strategy that is becoming successful,” said Faucette. “Can the company stabilize its user base? We are skeptical.”

Chen’s software goal “unreasonable”

BlackBerry, which was once the leader in smartphones, has been struggling in recent years, owing to the emergence of Apple iPhone, which debuted in 2007. Apart from Apple, Google’s Android and Samsung’s Galaxy series are also responsible for the Canadian firm’s plight. Of the last 22 quarters, the firm has missed revenue expectations in 19 of them, reveals data from FactSet. And year to date, BlackBerry shares are down 29%.

The lack of revenue growth has pushed the Canadian firm to shift its focus toward software. The changed focus is helping, and in the most recent quarter, the company witnessed a jump of 153% in revenue from software and technology licenses, which accounted for 21% of total revenues.

However, Faucette noted that it is very unlikely for BlackBerry to hit a goal of $400 million in software revenue. The analyst believes it to be “unreasonable” for the Canadian firm to make that much money from software.