BlackBerry: Stock of the Week

This Canadian tech stock is 48% undervalued—but is it a buy?

Andrew Willis 8 July, 2024 | 4:15AM
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Andrew Willis: Despite some of the coverage about cost-cutting at BlackBerry (BB), it’s always been a company in motion, it’s undergoing a promising transformation right now, and its stock trades at a discount to our fair value estimate.

But does it make the stock a buy for BlackBerry fans out there? As we discussed earlier this year, BlackBerry has carved out quite the business in automotive software with applications for automotive chips, safety systems, and vehicle cabin features. We see its enterprise business, however, as weighing on results as the company competes with larger enterprise security incumbents. And the challenge there for BlackBerry largely comes from switching costs.

BlackBerry’s Businesses Should Build a Moat

With more companies offering comprehensive suites of software that require fewer people in IT to implement, the switching costs in the sector have taken a tumble. Morningstar equity analyst William Kerwin says that BlackBerry’s largest competitors in endpoint management have moats, but we think these result from comprehensive portfolios of endpoint solutions and that the fragmented $3 billion unified endpoint management market is not enough on its own to bestow a moat on BlackBerry, despite the company having an impressive market share.

We do see some moatworthy characteristics in BlackBerry’s QNX automotive business, however, but the switching costs are an issue here as well. Currently, car infotainment systems haven’t gotten so complicated that they have become mission-critical for automakers—although with the emergence of autonomous vehicles, that could change.

For Morningstar, I’m Andrew Willis.

 

bulls BlackBerry Bulls Say

  • BlackBerry is the leader in embedded automotive software, with its solutions spanning most global OEMs and holding the highest security certifications.
  • BlackBerry’s focus on security gives it an advantage in regulated industries, like government, healthcare, and financial services.
  • BlackBerry IVY—the result of a partnership with Amazon Web Services—could create a revolutionary software ecosystem for connected vehicles, allowing OEMs to process, analyze, and monetize massive amounts of vehicle data.

bears BlackBerry Bears Say

  • BlackBerry doesn’t have the scale, breadth, or name recognition to compete in enterprise software with giants like Microsoft and VMware.
  • BlackBerry has been quickly losing share in a rapidly growing enterprise security market.
  • BlackBerry has yet to prove its ability to grow organically as a software company.

The author or authors do not own shares in any securities mentioned in this article.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BlackBerry Ltd3.33 CAD0.91Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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