BlackBerry (NYSE:BB) shares popped 10% higher on Friday, in response to a positive earnings surprise for fiscal Q3 2016. One analyst that was particularly surprised by the move was local banker BMO Capital Markets, which had hung a neutral rating on BlackBerry stock going into earnings.

What's more, BMO had told investors to expect no more than a $7 stock price on BlackBerry any time in the next year. When the shares exploded past $8, therefore, the analyst was in something of a pickle. Should it advise selling local telecom hero BlackBerry, since the shares were now officially overvalued? Should it instead raise its price target, and urge investors to buy, pointing to "surging software sales" as a good reason for optimism?

In the end, BMO hedged its bets. It didn't raise its rating on the stock -- but BMO did raise its price target on BlackBerry.

Anatomy of a (sort of) upgrade
As described on StreetInsider.com this morning, BMO's feelings on BlackBerry today are an exercise in caveating. On the one hand, "November-quarter results were mostly positive. Revenues were well above [BMO's] estimates ... software was a touch stronger than expected, as were phone sales." And BMO thinks BlackBerry will likely hit its target of $500 million in sales for this current fiscal year 2016.

On the other hand, BMO repeated that feat could be difficult. This year's results will include inorganic revenue growth from four acquisitions, plus "$120 million of onetime IPR" revenue that will not repeat. And even with all the new revenue, BMO sees little chance of BlackBerry booking a profit this year -- or next year, either. Instead, the analyst is looking for $0.31-per-share losses to end each of FY 2016 and FY 2017.

But if that's the case, why increase the target price?

Let's go to the tape
Perhaps the simplest answer is this: BMO Capital just isn't a very good stock analyst. According to our Motley Fool CAPS, where we've been tracking BMO's performance for nearly a decade now, this banker ranks among the world's worst, with an accuracy record of 47% on its picks -- and a record of underperforming the S&P 500 by more than 3 percentage points per pick.

BMO's record in communications equipment stocks over the past 10 years is a bit better than its overall record across the stock market -- but only a bit:

Company

 

BMO Most Recently Said:

CAPS Says:

BMO's Picks Beating (Lagging) S&P By:

Nokia (NYSE:NOK)

Underperform

***

27 points

BlackBerry

Underperform

*

(53 points)

Qualcomm (NASDAQ:QCOM)

Outperform

****

(99 points)

Over the past nine-plus years, therefore, BMO has established a record of being wrong on communications equipments stocks about three times more often than it's right. That doesn't bode well for investors trusting its BlackBerry price target hike to lead them higher today.

Valuing BlackBerry
Now I'll grant you that at first glance, things don't look all bleak for BlackBerry at present. With trailing GAAP earnings of $58 million, BlackBerry is looking more profitable than it has in years. Indeed, according to data from S&P Capital IQ, the company is even generating decent free cash flow now -- $426 million over the past 12 months. On a $4.6 billion market capitalization, that works out to about 11 times FCF, much better than the P/E of 94.8 that currently shows up on Yahoo! Finance, and not an obviously high price for a company showing decent profits growth.

Problem is, analysts do not expect decent growth in profits -- or profits, period -- at BlackBerry anytime soon. To the contrary, analysts on average project only 3% growth at the company over the next five years -- and GAAP losses as far out as 2018, at least.

What's more, free cash flow dropped precipitously in the third quarter, relative to what BlackBerry was collecting one year ago. So far from being a leading indicator of profits improving faster than expected, BlackBerry's cash flow statement appears to be flashing a "DANGER, DANGER" signal at us, warning that things might soon get worse, not better.

The upshot for investors
Don't be fooled. Yes, BMO raised its price target on BlackBerry. But it did so more in spite of how well the stock is doing than because of it. (And given BMO's record, you probably shouldn't be following their advice too closely in any case).

If you're looking for a better stock to invest in, either of the other two shown in the table up above will probably suit you better. Despite choppy free cash flow, Nokia boasts a rock-solid balance sheet, strong GAAP income, and a growth rate estimated at three times as fast what BlackBerry might produce. For that matter, Qualcomm's 15 P/E ratio looks downright attractive relative to the stock's 4% dividend yield and 11% long-term growth rate, and like Nokia, Qualcomm has built up a big cash war chest to help smooth its ride through any economic downturns.

Granted, free cash flow is a problem even at Qualcomm, too. And honestly, I don't think either Nokia or Qualcomm has quite hit "bargain stock" valuations -- yet. They're more candidates to watch for opportunities to buy at better prices. But either one is still a safer bet than BlackBerry.

That's just a fact.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 300 out of more than 75,000 rated members.

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