BlackBerry Ltd (BBRY) PT Bumped To $7

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Evercore analysts Maintain EW but raise PT to $7 as they believe BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) finally has a leader in charge with a plan. Analysts like new CEO John Chen’s focus on highly-secure enterprises and his comprehensive re-organization plan, including outsourced handsets to Foxconn Technology Co., Ltd. (TPE:2354). Chen’s plan stops short of a focus on an open-BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) platform, however, which they think is the only way for a return to even mild greatness.

Analysts see a fundamental conflict between BlackBerry’s hardware and services: BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) competes with iOS and Android players in its devices, but needs their cooperation to achieve its open platform goal in services. That said, they see Chen moving in the right direction, albeit a focused niche versus an aggressive horizontal push. Research firm’s $7 PT is based on 20x their long-term optimistic EPS power of ~ $0.35.

BlackBerry November Results

($0.67) EPS on $1.2B vs. consensus of ($0.43) on $1.5B. Services rev’s of $632M declined ~ 13% q/q –  estimate a 4M decline in subscribers to 66M and monthly ARPU of $3.12 vs. $3.39 last quarter, and stable 65% gross margins. Handset sales of $477M (down 61% q/q) on 1.9M units at $251 ASP, with 4.3M in sell-through. Analysts at the firm estimate negative 15% gross margins for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s devices. Net cash declined $371M q/q to $2.2B or $4.18 per share vs. $4.90 last quarter.

Cash Flow Neutral by FYE15 and a profitable FY16

Guidance was vague, but Chen gave more detail than normal including a reduction in purchase obligations to $1.5B vs. $2.9B last quarter, with expectations of just $500M left in IP cash payments which combined with (hopefully) better operating results can drive cash break-even results by FYE15. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) targets positive EPS in FY16 based on a stabilized enterprise software business, break even handsets (help from Foxconn), and dramatic opex cuts.

Reorganization into 4 groups and Foxconn JVP

The four operating segments will include: 1) Enterprise Services (BES10 platform), 2) Messaging (BBM services), 3) QNX (automotive and cloud services), and 4) Devices (hardware/handsets). BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) also announced a 5 year strategic partnership with Foxconn Technology Co., Ltd. (TPE:2354) and will jointly develop and manufacture BB devices as Foxconn Technology Co., Ltd. (TPE:2354) manages the inventory, with an initial focus to fast-growing emerging markets (Indonesia in particular).

Forecast Update

Analysts forecast ($1.40) on $5.4B for FY15 and ($0.30) on $4.4B for FY16. Evercore’s forecast assumes a gradually-declining services business and a normalization in handsets by mid FY15 and a dramatic reduction in operating expenses.

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