BlackBerry Limited (BB) and Motorola Solutions, Inc. (MSI) are two established companies that play an important role in the networking industry. Headquartered in Waterloo, Canada, BB provides intelligent security software and services to enterprises and governments worldwide, leveraging artificial intelligence (AI) and machine learning. MSI provides mission critical communications and analytics in the United States, the United Kingdom, Canada, and internationally. It operates through two segments: products and systems integration, and software & services.
While the COVID-19 pandemic-induced remote lifestyle increased the demand for networking solutions exponentially, that demand is expected to be sustained in the near-term, owing to technological advancements in 5G, internet of things (IoT) and artificial intelligence (AI), among others. According to Global Market Insights, the data center networking industry is expected to grow at an approximate 15% CAGR between 2021 - 2027. Investors’ interest in the networking industry is evident in Invesco Dynamic Networking ETF’s (PXQ) 28.1% returns over the past nine months.
So, both BB and MSI could keep witnessing increasing demand for their solutions in the coming months. But while BB has gained 165% over the past year, MSI has returned 40.7%. Furthermore, in terms of six months’ performance, BB is a clear winner with 62.7% returns versus MSI’s 23.2%. But which of these two stocks is a better pick now? Let's find out.
Latest Movements
BB introduced BlackBerry Optics 3.0 on May 17. It is its next-generation cloud-based endpoint detection and response solution, and BlackBerry Gateway, its first AI-empowered Zero Trust Network Access product. This is expected to give the company an edge over its peers in terms of extended detection and response strategy.
Meanwhile, MSI and Anterix Inc. (ATEX) announced on May 27 that they have entered an agreement to facilitate the deployment of private LTE networks by utility companies as part of the sector's efforts to modernize the electric grid. Consequently, MSI is expected to witness increasing demand for its services in the coming months.
Recent Financial Results
BB’s revenue for its fiscal fourth quarter, ended February 28, 2021, was $210 million, compared to $218 in the third quarter (ended November 30, 2020). Its gross profit increased 2% sequentially to $152 million. However, BB’s net loss increased 668.3% year-over-year to $315 million. Its adjusted EPS for the quarter declined 66.7% year-over-year to $0.03.
For its fiscal first quarter, ended April 3, 2021, MSI’s net sales were $1.77 billion, which represents a 7.1% increase from the prior-year quarter. The company’s net income for the quarter was $244 million, up 23.9% year-over-year. Its non-GAAP EPS increased 25.5% year-over-year to $1.87.
Past and Expected Financial Performance
BB’s EBITDA grew at a 12.8% CAGR over the past three years. The company’s annual revenue is expected to increase 15.4% in 2023. BB’s EPS is expected to increase 220% in 2023.
In comparison, MSI’s EBITDA grew at a 5.5% CAGR over the past three years. Analysts expect MSI’s annual revenue to increase 9% in 2021 and 6% in 2022. Its EPS is expected to increase 10.7% in 2022. Also, MSI’s EPS is expected to grow at a 12.8% rate per annum over the next five years.
Profitability
MSI’s $7.53 billion trailing-12-month revenue compares to BB’s $893 million. However, BB is more profitable, with a 72% gross profit margin versus MSI’s 49.2%.
However, MSI’s EBIT margin and ROA of 21.56% and 9.60%, respectively, compare favorably with BB’s negative values.
Valuation
In terms of forward EV/S, BB is currently trading at 9.98x, which 101.6% higher than MSI’s 4.95x. In terms of forward EV/EBITDA also, BB’s 173.11x is 914.1% higher than MSI’s 17.07x.
So, MSI is the more affordable stock.
POWR Ratings
MSI has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, BB has an overall F rating , which represents Strong Sell. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.
MSI has a B grade for Sentiment, which is in sync with favorable analyst sentiment, while BB has an F grade for Sentiment.
Moreover, BB has a D grade for Quality. This is reflected in its negative ROA value, which compares to the 3.19% industry average. MSI has a B grade for Quality, which is consistent with its 9.56% ROA, which is higher than the 3.19% industry average.
Of the 56 stocks in the B-rated Technology-Communication/Networking industry, MSI is ranked #3 and BB is ranked #54.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve rated both BB and MSI for Momentum, Stability, Value and Growth. Click here to see the additional ratings for MSI. Also, get all of BB’s ratings here.
The Winner
With consistent technological advances, the demand for networking solutions is expected to continue rising. However, we think it is better to avoid BB now because it has been growing mainly due to the subreddit WallStreetBets’ interest in it. Its weak financials and bleak near-term prospects don’t justify its current price level. Being relatively cheaper and having solid growth prospects, MSI is a better buy.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about top-rated stocks in the Technology-Communication/Networking industry.
BB shares were trading at $16.35 per share on Monday afternoon, up $2.49 (+17.97%). Year-to-date, BB has gained 146.61%, versus a 13.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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