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By Todd McDonald

Research In Motion (RIMM) is scheduled to report 3Q 2013 earnings after the close of trading on Thursday, December 20, 2012, with a conference call to follow at 5:00 p.m. EST. RIM's shares are up over 100% since the September low of $6.22. With such a dramatic advance over recent weeks, any missteps could cause a steep retracement after the 3Q 2013 earnings are disseminated.

Outliers And Strategy

Key Measures Covered by Selerity:

  • Adjusted Earnings Per Share (EPS): The consensus estimate is a loss of (-$0.35) with a range of (-$0.58) to (-$0.17).
  • Revenues: Revenues are expected to come in at $2.65 bln, the midpoint of the projected rang of $2.38 bln to $2.91 bln. (Source: Yahoo Finance)

While RIM no longer gives formal guidance, CEO Thorsten Heins stated in the last 2Q 2013 release that there will be continued pressure on operating results for the remainder of the fiscal year based on:

  • Competition
  • Lower handset volumes
  • Increased marketing expense for Blackberry 10
  • Customer pressure to reduce RIM's monthly access fees

Recent News

  • 12/18: According to a report published by Barron's, the recent rally is not sustainable. The article draws comparisons to when Palm briefly rallied from $3 to $18, and subsequently back to $3. It also refers to the high variance in analyst estimates for Fiscal Year 2014 -- ranging from a (-$2.51) loss to a profit of $1.05.
  • 12/18: According to a post on MarketWatch.com, National Bank downgraded RIM shares to Sector-perform. Analyst Kris Thompson reportedly believes that RIM 's shares are overbought and that it would be prudent to take profits ahead of the upcoming earnings.
  • 12/03: Canaccord Genuity downgraded RIM from Hold to Sell with a price target of $10, according to a story on StreetInsider.com. The firm cites a tough competitive landscape for the BlackBerry 10. Canaccord also predicts that the Blackberry Operating System's market share will fall to a mere 4.6% this quarter.
  • 11/30: According to a post in StreetInsider.com, Goldman Sachs Upgraded RIM from Neutral to Buy, with a $16 price target. The firm believes that BlackBerry 10 will have a strong release, and that RIM will turn profitable in Fiscal Year 2014.

Technical Review

As of December 18, RIM's shares are up 120.58% from the lows of $6.22 set on September 22, 2012. The stock also looks ready to form a "golden-cross" with the 50-day SMA, ready to pierce the 200-day SMA. While some of the move may be attributable to short-covering, it is worthwhile to note that there is still a massive 27.34% of the float held short -- an all-time high. Should earnings disappoint, look for support at $12, followed by $10. If earnings significantly beat expectations, we could see a short squeeze up to early-2012 resistance of $15 (Chart courtesy of StockCharts.com).

Summary

Research in Motion has been on a spectacular run this quarter, signaling that Wall Street is expecting a solid earnings release. With renewed optimism on Blackberry 10, a meaningful upgrade from Goldman, and high short interest, it seems that all the recent positive news has been priced in at current levels. However, for RIM to successfully gain traction in the smartphone market, the Blackberry 10 will need to take market share away from the likes of Apple's (NASDAQ:AAPL) iPhone and Google's (NASDAQ:GOOG) Android devices -- which will not be released until January. Therefore, RIM is vulnerable to a sell-off unless earnings significantly exceed traders' expectations.

Disclaimer: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Source: Research In Motion Vulnerable Ahead Of 3Q 2013 Earnings Release