RIM: Shares Hold Up Despite Warning; High Hopes for Bold, Storm

Research In Motion (RIMM) shares have had a remarkably subdued response to last night’s warning on November quarter results. The Street is of two minds here.

On the one hand, there were widespread expectations that the company was going to miss, particularly given recent warnings from Nokia (NOK) and Palm (PALM); the question was by how much. And some analysts suggest there is relief on the Street that the miss wasn’t larger. Meanwhile, some observers took comfort from bullish comments on the progress so far of its new marquee phones, the Bold and the Storm. And several point out that the company remains a leading player in one of the few tech segments likely to produce double-digit revenue gains in 2009: smartphones.

On the other hand, the company projected gross margins a bit below the Street’s liking, and there are signs that the new phones are eating into demand for older models, in particular the Curve and the Pearl. There were also some negative comments on the Storm, with one analyst asserting that, while Verizon (VZ) stores are stocked out, the rate of returns has been high. It’s also hard to imagine that going forward the company will avoid feeling some impact from the ongoing recession.

Nearly every analyst on the Street who covers the stock cut estimates today, and many reduced their price targets, some quite substantially. Here’s a rundown on what some of them are thinking:

• Jim Suva, Citigroup: Hold rating; cuts target to $43, from $53. “RIMM is not a fresh money buy until there is more clarity on demand and success of consumer push and stability in gross margins…also need further cuts to consensus estimates as we don’t think this is a 1 quarter issue.” But he also says that the stock is still a growth story. “We’re not sellers here.”
• Samuel Wilson, JMP Research: Market Perform rating; target to $55, from $80; but notes that “we do think the company has a solid portfolio going into the February quarter.”
• James Faucette, Pacific Crest: Sector Perform rating. Checks with retailers find that sell-through of the Pearl and Curve is declining, due in part to cannibalization from the Storm and the Bold. He says that “risks to estimates persist,” with “pricing and margin pressure” likely to persist.
• Tim Long, Bank of America: Buy rating; but cuts target to $50, from $122. While macro uncertainty will impact the company, “we still see a very strong product cycle with a full quarter of Storm and Bold” ahead as well as coming iDen and Javelin launches.
• Rob Sanderson, American Technology Research: Maintains Buy rating, asserting that the quarter “was not the disaster many had feared.” Adds that “while controversy will not clear in the near-term, we believe in the secular story and think the stock can provide very significant returns from here.”
• Mike Abramsky, RBC Capital: Sector Perform rating; target to $45, from $65. He sees ongoing risks, including weakening macro environment, reduced margin visibility and interim execution issues.
• Scott Coleman, Morgan Stanley: Equal Weight rating. He says the stock will be range bound “until investors become comfortable that RIMM’s operating model will not evolve into a traditional handset margin structure.”
• Jeff Kvaal, Barclays: Overweight rating; target to $56, from $60. He says the “expected news” may offer some short-term relief, but that “a major upward move likely requires margin stabilization.”
• Simona Jankowski, Goldman Sachs: She keeps a Buy rating, but pulls the stock from the firm’s Conviction Buy List, asserting that the company will be one [of] three long-term smartphone leaders, with Apple and HTC. She notes that Storm demand has been better-than-expected despite wide-spread concerns over software glitches.
• T. Michael Walkley, Piper Jaffray: Neutral rating, $43 target. He contends that, contrary to the assessment of some other analysts, results for the Storm have been “mixed to disappointing.” He contends: checks with retailers find “a relatively high rate of return of Storms from disgruntled customers.”
• Brian Modoff, Deutsche Bank: Sell rating, $30 target. He contends the reception to both the Bold and the Storm has disappointed. “We think the Storm has numerous flaws and the functionality of both devices is largely unchanged from previous devices. This makes for a poor comparison with competitive products.”

Disclosure: None

Comments

[Hayweed:]

Apple is eating Rimm's lunch. Kind of funny that when Basille was asked on a conference call if he was worried about the iphone he replied nah, nah! Think he is worried now.

2008 Dec 04 01:29 AM

[tginomorebush:]

hopefully eric found another sector to lambast and short ........ eric always seems to enjoy his work ...... finding anything and everything that is wrong with a stock or sector! barrons shorts everything that eric lambasts

2008 Dec 04 11:15 AM

[kris23:]

Demand might be strong for the Storm, but it doesnt count when people are returning them within the 30 days Verizon lets you. If you cant deliver, consumers are not gonna be happy. Sentiment dropped from being somewhat bullish to extremely bearish on their estimate warnings (predictwallstreet.com/...) and I can't see how they are going to maintain anything when sentiment is so low.

2008 Dec 04 01:36 PM