Join        Login             Stock Quote

Research In Motion (RIMM): Upgrading To Buy On Positive Risk/Reward Into Blackberry10 Launch - Goldman

 November 29, 2012 10:16 AM

Goldman Sachs is joining the Research in Motion (NASDAQ:RIMM) bulls this morning with an upgrade to Buy from Neutral with a $16 price target (prev. $9)

- Their Bull case is $31/share based non FY14 EPS of $3.08

Some context on the recent run – RIMM is up 76% from its September low of $6.31, but still down 23% on the year and down 92% from its 2008 high. The recent run has been driven by better–than-expected August quarter earnings, followed by the announcement that BB10 would launch on January 30 and is in the labs of 50 carriers for final testing, as well as a steady drumbeat of emerging bits of information around the new smartphones' specs and features (which have been generally impressive). Given that short interest in the stock is at an all-time high at 20% of shares outstanding, Goldman believes short covering has contributed to the sharp bounce off the lows.

[Related -Google (GOOG) Gives A Lesson On The Importance Of Viewing Multiple Timeframes]

Goldman notes they are upgrading the stock as they see a positive risk/reward heading into its BlackBerry 10 (BB10) launch on January 30. For the first time in 3 years, they think out-year Street estimates are too low, as they don't capture: 1) the ASP lift from BB10; 2) the associated margin improvement; and 3) the channel inventory fill for BB10. They now assess a 30% chance of success for BB10 given positive early reviews, broad-based carrier support, attractive features, and interest by carriers and consumers in broadening the field beyond Android/iOS;

[Related -Analysts' Upgrades And Downgrades: ENDP, FB, JDSU, LVS, HES, RIMM, QCOM]



Goldman expects RIM's results will exceed Street estimates over the next 4 quarters, with their revenue estimates 8% and their quarterly EPS $0.14 above consensus on average. In fact, the firm now estimates that RIM will turn profitable in FY14 (Feb) vs. the consensus view of continued losses. The primary source of upside is their FY14 smartphone ASP estimate of $270, up 21% yoy vs. the consensus view of roughly flat, as they expect BB10 devices priced at over $400 will drive more than a third of the total volume, offsetting sharp declines in emerging markets where ASPs are much lower. Goldman is raising their FY13/14/15 EPS estimates to ($0.99)/$0.20/($0.62) from ($1.07)/($0.52)/($1.61) on higher ASPs and margins as a result of the BB10 ramp, partially offset by much lower units in emerging markets.

A trade or an investment? Time will tell – Even if BB10 is ultimately not successful (which is Goldman\s current base case scenario, at 70% probability) they expect RIMM to outperform over the next 2-4 quarters, as they see upside to Street estimates from higher ASPs and margins as well as channel inventory fill over the next 4 quarters around the BB10 launch. If RIMM does succeed in establishing BB10 as a viable niche ecosystem and sees follow-through demand post the launch (which is Goldman bull case scenario, at 30% probability), then it could further strengthen the long-term investment case.

Notablecalls: The stock took a slight breather following the 2 upgrades (Jeffco and CIBC) that took it from $9.50 to $12 recently.

Now it can proceed higher. I'm thinking $12.50+ today.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

article imageThe Single Best Place To Invest Your Money For Retirement

It was never supposed to be this daunting. At least that's what we were read on...

article imageNegative Blowback From Negative Interest Rates

The Federal Reserve is widely expected to leave interest rates unchanged today. But perhaps standing pat read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.