BlackBerry stock has reversed course after a single day of strong gains after the company announced that it had won a refund of some of the royalty payments it had made to Qualcomm QCOM. At least three firms boosted their price targets for BlackBerry Ltd (NASDAQ:BBRY) stock due to the news as tech watchers began to consider whether things are finally starting to go right for the Canadian firm.
Qualcomm QCOM – BlackBerry’s financial position improves
BlackBerry announced on Wednesday morning that it had won $815 million in an arbitration against Qualcomm. The chip maker will now have to refund that amount for overpayments on royalties made for past sales. The final amount will be announced after the May 30 hearing and will include attorneys’ fees and other items. Qualcomm QCOM also announced that the decision is binding and can’t be appealed, so this is certainly a win for BlackBerry.
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RBC Capital Markets analyst Paul Treiber said in a research note dated April 12 that he believes most investors weren’t expecting any “material” award from that arbitration. He believes the award isn’t fully taxable because of the company’s previous operating losses, and he pegs BlackBerry’s net cash at $1.9 billion or $3.62 per share after the award, compared to the $1.1 billion or $2.09 per share the company had previously.
BlackBerry Ltd BBRY – Risks diminished, but still there
Based on the award, Treiber raised his price target for BlackBerry stock from $8 to $9.50 per share but maintained his Sector Perform rating. He feels that the cash award reduces the risks associated with the struggling company’s turnaround but has kept his rating at Sector Perform because he feels that “visibility to emerging software opportunities remains low and difficult to value.”
The RBC analyst suggests that the cash award could cause BlackBerry BBRY to revise its capital allocation strategy. Among the possibilities is speeding up its investments in product development. Another possibility is to pay back the $591 million it has in outstanding convertible debentures or buy back some of its stock.
BlackBerry Ltd BBRY – What about acquisitions?
He also noted that the company could make some acquisitions it hadn’t even been considering, a notion several others are starting to suggest. CEO John Chen said last month when talking about the cash they already had that they would be “careful and thoughtful” and that they were “not going to be crazy.”
Now they have even more cash, so the same rules probably apply, and it’s no surprise that so many analysts are suggesting acquisitions, given Chen’s history. The Globe and Mail noted that while executing Sybase’s turnaround, he spearheaded five acquisitions before selling Sybase to SAP AG in 2010.
TD Securities analyst Daniel Chan suggested that strategies to build out the company’s Internet of Things sales channel would be a good idea. On the other hand, Chen himself said they might be interested in the cyber-security market, although he also explained that they hadn’t made any acquisitions in that area yet because of high multiples on potential targets.
CIBC also upgraded BlackBerry stock from Underperform to Neutral for the Qualcomm news. The firm bumped its price target for the stock from $8 up to $10 per share as well. Analysts at Goldman Sachs and Canaccord Genuity also boosted their price targets for BlackBerry stock. BMO Capital Markets analysts bumped their price target for BlackBerry stock up from $8 to $9 per share and reiterated their Market Perform rating.
Shares of BlackBerry stock plunged by as much as 3.02% to $8.66 during regular trading hours on Thursday.