BB Inventory Is a Steal If Blackberry Maintains Free Money Stream

Blackberry (NYSE:BB) might turn out to be a cut price inventory this yr if the corporate retains producing giant quantities of free money movement (FCF). Although BB inventory has skyrocketed previously month, I estimate it might be price 32% extra. That places its worth at $20.91 per share. Picture of the BlackBerry emblem on the


Blackberry (NYSE:BB) might turn out to be a cut price inventory this yr if the corporate retains producing giant quantities of free money movement (FCF). Although BB inventory has skyrocketed previously month, I estimate it might be price 32% extra. That places its worth at $20.91 per share.

Picture of the BlackBerry emblem on the aspect of a constructing.

Supply: Paul McKinnon/Shutterstock.com

That is based mostly on its FCF era. Final yr the corporate made $82 million in money movement from operations (CFFO). This may be seen on web page 7 of its latest earnings report. After deducting the $8 million in capital bills (capex) in the course of the yr ending Feb 2021, its FCF was $74 million. That works out to a FCF margin of 8.28% of its $893 million in gross sales in the course of the yr.

Estimating FCF Utilizing FCF Margins

Nonetheless, wanting extra carefully at what occurred final yr I made a decision to revise my mannequin. For instance, In search of Alpha exhibits that in its fourth quarter, Blackberry generated $52 million in CFFO and spent $3 million on capex.

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Subsequently, its FCF throughout This autumn was $49 million, or an enormous 23.33% of its $210 million in income in the course of the quarter. That may be a a lot greater FCF margin than the 2020 common of 8.28%.

Assuming this excessive FCF margin maintains this fee, we will estimate Blackberry’s worth. For instance, analysts estimate that by Feb 2023, about 1.5 years from now, gross sales will hit $958 million. So utilizing a 23.33% FCF margin, Blackberry will produce $223.5 million in FCF that yr.

Utilizing FCF Yield To Worth Blackberry Inventory

Most high-tech shares commerce at an FCF yield of between 1% to three%. That is calculated by dividing the free money movement estimates by its yield quantity.

Let’s use a 1.5% FCF yield in our calculations. For instance, utilizing $223.5 million in FCF forecast for Blackberry in 2023, brings its worth to $14.9 billion. That is 73.65% above as we speak’s market worth for Blackberry of $8.58 billion.

Nonetheless, we have to regulate the FCF quantity first. Keep in mind that is for the yr ending Feb. 2023. That’s 1.5 years from now. Utilizing a ten% low cost fee over 1.5 years, the current worth low cost issue is 86.68%. Subsequently, the $223.5 million in FCF works out to $193.73 million in current worth FCF.

So which means that BB inventory is price $12.915 billion utilizing a 1.5% FCF yield. That’s nonetheless 50.5% above as we speak’s value. In actual fact, to be much more conservative utilizing a 2.0% FCF yield offers the inventory a market worth of $9.687 billion. That is nonetheless 12.9% above as we speak’s value.

Subsequently, Blackberry is price someplace between $12.915 billion and $9.687 billion, or $11.3 billion on common. That is 31.7% above as we speak’s market worth of $8.58 billion.

In different phrases, BB inventory is price about 31.7% greater than its value as we speak (June 3) of $15.88, or $20.91 per share.

Clearly, numerous this is dependent upon the FCF margin estimate, the low cost fee, and the FCF yield for the ultimate valuation estimate. Adjustments in any of those elements can change the long run worth estimate. However that is our greatest guess at the moment, based mostly on the corporate’s stellar This autumn efficiency in producing big FCF margins.

What To Do With BB Inventory

Analysts are likely to not agree with me. For instance, 3 analysts surveyed by TipRanks.com estimate that BB inventory’s 12-month value goal is $9.00. This suggests an enormous 43% drop from as we speak’s value.

That’s means under my value goal of $20.91 per share based mostly on the corporate’s estimated FCF margins.

Furthermore, In search of Alpha has a survey of 8 analysts who estimate its worth at $8.00 per share, even decrease than the TipRanks.com value goal.

One thing is basically off right here. Analysts are both means off, or the market of buyers which have pushed the top off 72% previously month know one thing that analysts don’t. Just lately a cynical quick vendor, Robert Chapman, implied to CNBC that clearly, the market is improper.

Not so quick. I’ve simply put ahead a mannequin for BB inventory that justifies its big achieve this previous month and even exhibits that it’s nonetheless undervalued by 32%.

On the date of publication, Mark R. Hake didn’t maintain a place in any safety talked about within the article. The opinions expressed on this article are these of the author, topic to the InvestorPlace.com Publishing Pointers.

Mark Hake writes about private finance on mrhake.medium.com and runs the Complete Yield Worth Information which you’ll evaluate right here.

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