BlackBerry Bull

One of the most bullish analysts on the Street with respect to BlackBerry is Gus Papageorgiou from Scotiabank (formerly called Scotia Capital). He recently outlined the reason for his near-term optimism in a Q4 earnings preview report, and I had a read through it.  He makes a good case.

For Q4 (which will be reported Thursday morning), he’s expecting 1.0 million Z10 shipments, improved gross margin and higher than consensus ASP (average selling price). Papageorgiou expects the Z10 to bring in ASPs of $550, which he notes is higher than the $506 Street estimate. I think the Street has played things very conservatively on ASP in the past. Just a few months ago everyone assumed the Z10 would sell for only $400.  Folks - remember when I say “sell for” I mean what BlackBerry sells to the carrier for. Anyway, now analysts expect $506 and Scotia is calling for $550.  If they are right, it’s materially positive.

Scotia thinks revenue will come in at $3.0 billion, 7% higher than Street expectations. But Papageourgiou is not expecting an earnings beat because he figures SG&A expenses (that’s selling general and admin, for the finance newbies) will be higher.  Makes sense to me. BlackBerry is spending more money than it ever has on marketing. And it’s probably only ramping up from here.

Where Scotia really takes a bullish view is on next quarter: Q1 of fiscal 2014.  Papageourgiou expects BlackBerry to deliver $5.3 billion in sales (remember, that’s sequentially higher from his $3 billion estimate for this quarter). He notes that this is 63% higher than consensus expectations, meaning that most analysts expect only a small incremental improvement in May quarter sales.

I don’t know if Scotia is being too aggressive or not.  But the consensus estimate is for less than a 20% rise in revenue next quarter despite a full GLOBAL availability of the Z10 and I would expect a partial quarter of the Q10. These devices sell for substantially more than BB7 phones, and there is a gigantic user base waiting to upgrade.  My *guess* is Papageourgiou is closer to being right than wrong here.

Scotia has a Sector Outperform rating on the stock with a C$23 target price.