BlackBerry (BBRY) reported 4th quarter results on March 28, 2013 and believe me when I say this report carried something for everyone, both bull and bear alike. I wanted to wait a week for this blog after BlackBerry reported to capture the changes in analysts’ estimates that directly impact our calculation of model price for illustrative purposes.
The highlights included:
– BlackBerry made money in the 4th quarter ($0.22 or $98 million dollars) where the street was expecting a loss. ($-0.29) The difference being very strong gross margins and higher average selling prices BBRY was receiving on the new phone the Z10.
– The big disappointment was the loss of 3 million subscribers. The bears pounced on this negative number. Subscribers came in at 76 million from the low 80 million plus. BBRY changed the pricing model of their phone sales where users can use their phones without BBRY’s subscription network charges. Without these subscribers nonrecurring revenues are venerable making analysts’ nervous about future earnings and making BBRY more reliant on phone sales for profitability.
– The second disappointment is the retiring of Mike Lazaridis. This wasn’t telegraphed beforehand and a shock to say the least. For me I place this news in the negative column. To me this is an equivalent to Steve Jobs retiring from Apple.
So there you go, a very mixed bag of news. Interestingly BBRY closed relatively unchanged in price on Thursday, with the bulls and the bears fighting for most of the day.
So let’s have a look at the most recent BBRY model price chart updated with the company’s new balance sheet.
BlackBerry with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of BBRY subsequent to this post will be maintained on Facebook, here.
Since mid January BBRY has traded between EBV-2 and EBV-1. As I have indicated on our model price chart EBV-1 is $15.69. So if BBRY has a positive transit of this level this would be very bullish for the company. Likewise, if BBRY has a negative transit of EBV-2 or $13.11 this would be bearish.
I have noted several times on the Facebook – Comment Section, in my opinion this stock has been untradeable over the last six months. The volatility has been high, with prices transiting our EBV lines with each rumor on the internet.
The other item I like to point out is our calculation of model price, which you can see at the bottom of our model price chart above. After the 4th quarter earnings release all analysts have moved their earnings estimates positively. The mean estimate was negative before BBRY’s earnings release and is now a positive $0.27 per share for February 2014. This positive change is obviously having an impact on our model price calculation.
I have included, below, a long-term model price chart of BBRY from our database that is a little different from the Facebook application. In this chart you have a better view of the turnaround in our calculation of model price, which relates directly to analysts mean earnings estimates. Usually the market is ahead of analysts – positive transits of EBV lines – and BBRY is no exception. We often see this in turnaround situations. BlackBerry could be a situation where analysts are always late reacting to company news or business conditions resulting in the stock price leading our model price calculation. Eventually analysts will get overly bullish if a turnaround is real and model price jumps substantially above where the stock is trading. Unfortunately this usually occurs at EBV+3 (red line), or worst EBV+5 (yellow line) with investors missing out on substantial profits.
BlackBerry with monthly price bars, EBV Lines (colored lines) and model price (dashed line)
When Blackberry – old Research in Motion – had a positive transit of EBV-3 or “Coming out of the Blue” back on November 25, 2012 I highlighted this positive transit, here. BBRY continues its transition into a profitable company and the market senses a turnaround with a higher stock since the above noted blog post. I have blogged considerably on this company in the past and will continue from time to time. Hopefully the volatility in the stock price lessens in the future so transits can be traded profitably for those interested. I do want to emphasize for a “Coming out of the Blue” company where an investor “Buy and Hold” positive transits of EBV-3, BBRY is typical of a turnaround situation (fans and critics, bulls and bears) including having our model price calculation lag BBRY’s actual stock price. Patience is required with this “Coming out of the Blue” stock strategy that’s why you want as many of these “Coming out of the Blue” positions in your portfolio and don’t look at them too often! See my blog “How Jumbo Gains are Possible Using Model Price – Part 1”.