Option Trade 
BlackBerry Ltd (NASDAQ:BBRY)
Calls Tuesday, June 20, 2017

** OPTION TRADE: Buy the BBRY SEPT 15 2017 11.000 CALL at approximately $0.80. Place a pre-determined sell at $1.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.35.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Canadian handset manufacturer BlackBerry Ltd (NASDAQ:BBRY), a provider of mobile communications solutions, will release earnings on Friday, June 23, before the market opens.

Wall Street brokerages expect BlackBerry Ltd to post earnings per share of ($0.02) for the current quarter. Three analysts have issued estimates for BlackBerry’s earnings, with estimates ranging from ($0.03) to $0.02. BlackBerry also posted earnings per share of ($0.02) in the same quarter last year.

Analysts expect that BlackBerry will report full year earnings of ($0.05) per share for the current financial year, with EPS estimates ranging from ($0.09) to $0.06.

Also, BlackBerry is set to conduct its scheduled 2017 Annual General Meeting (AGM) on June 21, 2017.

Year to date, BlackBerry is having a dream run in the stock market. The stock price is up a massive 60.23% compared with a 13.15% gain of the categorized Wireless Non-US market - and some analysts see significantly more upside thanks to BBRY's focus on computer systems that run in cars.

BlackBerry Limited traded up 1.99% during trading on Monday, hitting $10.74. The stock’s market capitalization is $5.70 billion. The firm has a 50 day moving average of $10.34 and a 200 day moving average of $8.18. BlackBerry Limited has a 52 week low of $6.23 and a 52 week high of $11.74.

Influencing Factors to Consider

BlackBerry is now trading at 14x estimated 2018 EBITDA. After the latest earnings release, the company traded at 11.2x 2018 EBITDA. The estimate implies a sequential EBITDA improvement of 12% -as BlackBerry has been able to do- for the next seven quarters. This is mostly entirely based on the company's software revenue which has bigger margins than the rest of the segments. As those segments phase out, the EBITDA margin will start to be bigger.

Another part of BlackBerry's premium consists of the fact that the company's cash pile increased by roughly $800 million.

The company has started depending on acquisitions for growth after exiting the hardware-manufacturing business.

The company’s 2015 acquisitions of WatchDox Ltd., an Israeli enterprise data sync and share corporation, AtHoc, Inc., a United States networked crisis communications specialist, and Good Technology, a United States mobile security provider, as well as the 2016 acquisition of Encription Ltd., a United Kingdom cyber-security services firm, have become critical to BlackBerry as it is building its future as a security, software, and services firm.

The most optimistic scenario would be that management declares its intention to further their acquisitions and further bolster their earnings power.

BlackBerry has created a niche for itself by focusing on software that runs computer systems on cars, unveiling innovative software - QNX Hypervisor 2.0 - for running complex computer systems on Internet-connected cars. The software will help in running complex computer systems in vehicles to make it more secure from hacking.

BBRY has virtually completed its transition from hardware to software; cut expenses so it no longer burns cash and secured its balance sheet.

One simple device that BlackBerry recently brought to market has the potential to provide significant growth to the company over the next few years is BlackBerry Radar - a product that targets the trucking industry; it allows companies to see real-time information about the location and movement of fleets as well as a number of sensor-specific inputs from humidity and temperature variations to when the doors last opened.

The solution is dependent on a small box: the radar unit that is affixed to the truck which provides the requisite telematics.

The best part of this product is that it provides a solution to a common concern in the trucking industry and a steady stream of revenue to BlackBerry thanks to a monthly service fee for using the service.

Industry experts peg that the growing demand could see BlackBerry bring in half a billion in revenue over the next few years.

BlackBerry is also known and respected for its expertise in adhering to and maintaining security of communications and systems around the globe – particularly with acquisition of a U.K.-based cybersecurity firm last year which offers a wide variety of security services and reviews.

BlackBerry is finally making money in a much quicker time than expected, which speaks to the leadership capabilities of CEO John Chen. Plus, the company still has a sizable position not only in the enterprise market, but also in certain developing nations.

Analysts and Hedge Funds Opinions

Most analysts have very reasonable expectations of BBRY stock. They predominantly rate it as a HOLD. So the chances of surprise downgrades are minimal.

Raymond James Financial, Inc. downgraded shares of BlackBerry Limited from an “outperform” rating to a “market perform” rating and raised their target price for the stock from $9.50 to $11.00 in a report on Monday, May 29th.

Also, several other equities analysts have recently commented on the company…..

  • Imperial Capital reiterated an “in-line” rating and issued a $8.25 price objective on shares of BlackBerry in a research note on Thursday, April 6th.
  • BMO Capital Markets raised their price objective on shares of BlackBerry from $8.00 to $9.00 and gave the company a “market perform” rating in a research note on Monday, April 17th.
  • Raymond James Financial, Inc. reiterated an “outperform” rating on shares of BlackBerry in a research note on Wednesday, April 12th.
  • Canaccord Genuity reiterated a “hold” rating and issued an $8.00 price objective on shares of BlackBerry in a research note on Friday, March 31st.
  • Finally, Zacks Investment Research cut shares of BlackBerry from a “strong-buy” rating to a “hold” rating in a research note on Friday, April 7th.

Shares of BlackBerry Limited have been given a consensus rating of “Hold” by the twenty analysts that are currently covering the stock. Two research analysts have rated the stock with a sell rating, twelve have issued a hold rating, four have given a buy rating and one has issued a strong buy rating on the company. The average 1 year target price among brokers that have issued a report on the stock in the last year is $9.16.

Several institutional investors have recently made changes to their positions in the stock…..

  • Iridian Asset Management LLC CT increased its stake in BlackBerry Limited by 25.8% in the first quarter. Iridian Asset Management LLC CT now owns 26,338,893 shares of the smartphone producer’s stock worth $204,126,000 after buying an additional 5,403,804 shares in the last quarter.
  • Connor Clark & Lunn Investment Management Ltd. increased its stake in BlackBerry Limited by 13.5% in the third quarter. Connor Clark & Lunn Investment Management Ltd. now owns 13,487,443 shares of the smartphone producer’s stock worth $107,345,000 after buying an additional 1,604,050 shares in the last quarter.
  • Vanguard Group Inc. increased its stake in BlackBerry Limited by 5.0% in the first quarter. Vanguard Group Inc. now owns 10,428,072 shares of the smartphone producer’s stock worth $80,818,000 after buying an additional 493,101 shares in the last quarter.
  • OppenheimerFunds Inc. boosted its position in BlackBerry Limited by 83.9% in the first quarter. OppenheimerFunds Inc. now owns 7,357,607 shares of the smartphone producer’s stock worth $57,005,000 after buying an additional 3,356,948 shares in the last quarter.
  • Finally, First Eagle Investment Management LLC boosted its position in BlackBerry Limited by 48.9% in the first quarter. First Eagle Investment Management LLC now owns 6,159,856 shares of the smartphone producer’s stock worth $47,739,000 after buying an additional 2,022,000 shares in the last quarter. 62.48% of the stock is owned by institutional investors.

Harvey’s Options Volatility Indicator

Conclusion

BlackBerry continues to invest in a number of emerging technologies and areas that will provide it with significant growth and revenue opportunities. This not only makes BlackBerry a much-improved investment over what it was just a few short years ago, but it lays the groundwork for future growth.

When BlackBerry reports earnings this week, analysts still expect a 40% year-over-year decline in revenue and anywhere between a loss of 2 cents and a profit of 4 cents for the bottom line. But earnings are all about expectations, and the company has met or exceeded expectations in each of the last four quarters.

BBRY should handsomely beat the earnings estimate and the share price will rise as a result.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 ** OPTION TRADE: Buy the BBRY SEPT 15 2017 11.000 CALL at approximately $0.80. Place a pre-determined sell at $1.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.35.

 

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Options traders win because they are successful.



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