RIM Outlook: 'Berry, Berry Good'

Looks those BlackBerries still have plenty of juice.

As expected, Research In Motion (RIMM) shares are on a tear this morning after the company late yesterday posted better-than-expected results for its fiscal fourth quarter ended February, and more importantly, offered impressive guidance for the first quarter, in particular anticipating a market-pleasing rebound in gross margins. (See earnings call transcript.) The company’s gross margin had dropped by 10 percentage points over the last 12 months, as RIMM moved aggressively to expand its target audience to general consumers, rather than just corporate users. The Street has been worried that erosion would continue. But RIMM assuaged those concerns, forecast a rebound to 43%-44% margins in the May quarter, from 40% in the February quarter. And that investors and analysts alike celebrating this morning.

Several analysts upgraded the stock on news, including a couple of bears who are at least temporarily throwing in the towel. Other pundits increased price targets, and almost everyone raised earnings estimates. But a stubborn group of bears still think the company is headed for tougher conditions in the months ahead as new entrants continue to jump into the smartphone market.

Here’s a roundup on some of this morning commentary on the stock:

• Brian Modoff, Deutsche Bank: Upgrades to Hold from Sell; target to $56, from $30, specifically citing the better near-term gross margin guidance. But he’s still not quite bullish, asserting that “while RIMM seems to be benefiting from the initial inventory builds for their new devices, we do not think they are well-positioned strategically”; given increasing exposure to consume demand and a heavy weighting of sales in North America. He still sees margin pressure building over time.
• Kulbinder, Garcha, Credit Suisse: Upgrades to Neutral from Underperform; target to $61, from $37. “RIMM’s share gains appear to be higher than we had originally expected,” he writes. “The higher level of market share is likely sustainable in the near-term given continuing carrier promotions and a benign competitive environment ahead of several high profile products later this summer.” He adds that replacement rates are proving more resilient than expected given the weak economy.
• Matthew Hoffman, Cowen: Upgrades to Neutral from Underperform. “Our long-term enthusiasm for RIMM remains muted, and we still see limited market share gains for it in calendar 2009 as competition ramps,” he says. But with gross margins now expected to rise, “the key overhang”; has been removed, and “stock performance looks set to improve near-term.”
• Todd Coupland, CIBC: Upgrades to Sector Outperform, from Sector Perform, with target to $75, from $55. “RIMM has clearly pivoted to a much better balancing of new product growth and profitability,” he writes.
• Vivek Arya, Bank of America/Merrill Lynch: Repeats Buy rating; target to $80, from $67. “After three quarters of gross margin declines, RIMM finally managed to improve margins with a combination of lower component costs and favorable product mix,” he writes. “With 25 million total subs, up 80% year over year, RIMM is well positioned to sustain its momentum.”
• Robert Cihra, Caris: Repeats Buy rating; target to $80, from $60. “With strong organic growth in units and new subscriber trends even in the face of broad IT/consumer market weakness, we continue to see BlackBerry as one of the two best positioned smartphone platforms taking share of the global cell phone market pie”; he writes. (The other one: the Apple iPhone.)
• Mike Burton, ThinkEquity: Repeats Sell rating, but ups target to $55, from $30. “We were definitely wrong about RIMM’s near-term business..however we still see evidence of a pricing war in smartphones going forward, and we do not believe that RIMM can maintains the operating margins it has.”
• Tavis McCourt, Morgan Keegan: Repeats Outperform rating. “With shares of RIMM trading in line with the S&P 500 at 13x forward earnings, we remain firm in our view that there is significant upside from current levels once the economy recovers.”
• Shaw Wu, Kaufman Bros.: Maintain Hold rating; target to $64, from $50. “While we continue to believe RIMM is well-positioned in the smartphone space with its vertical integration and superior push email technology…we do not find the risk-reward compelling at 16x calendar 2009 EPS.”
• Charlie Wolf, Needham: Maintains Hold rating, “because of the dismal economic cliamte along with the risk of a more hostile competitive environment in the smartphone market.”
• Jeff Kvall, Barclays Capital: Repeats Overweight rating, ups target to $80, from $56. “Net add/unit conservatism and visibility on a margin floor suggest material further upside potential to the shares.”
• Mike Abramsky, RBC Capital: Repeats Outperform rating, ups target ot $80, from $75. “With only 1.9% global handset share, a large opportunity remains ahead.”
• Jim Suva, Citigroup: Repeats Hold rating, but ups target to $65, from $46. Suva notes that he had downgraded the stock in September on concerns about margins, but the expectations of improving gross margins “is structurally changing our investment thesis for RIMM shares for the better.”
• Simona Jankowski, Goldman Sachs: Repeats Buy rating, ups target to $65, from $57. “The key element of our Buy thesis is that RIMM’s likely margin expansion will help narrow the [greater than] 30% discount in the stock’s P/E multiple”; versus its peer group.
• Ehud Gelblum, J.P. Morgan: Maintains his Underweight rating and $40 target. “With gross margin likely peaking in fiscal Q1, especially as the consumer continues to dominate net adds, shipment volume slowing and ASP beginning to slide, we reiterate our Underweight.”

RIMM this morning is up $10.73, or 21.9%, to $59.82.

Comments

[.crazylegs..:]

Ehud Gelblum, J.P. Morgan: Maintains his Underweight rating and $40 target. “With gross margin likely peaking in fiscal Q1, especially as the consumer continues to dominate net adds, shipment volume slowing and ASP beginning to slide, we reiterate our Underweight.”

WOW! This guy has some balls! Not only did he blow the call a few weeks ago, he's doubling down. Did he even listen to the conference call when they talked about how carrier inventory levels are so low?

Apr 03 01:49 PM

[Kenan A.:]

What is wrong with these analysts. How can you upgrade to:
$56, from $30,
to $61, from $37.
to $75, from $55.

I no longer see the benefit of analysts. They react and change their target forcasts after the fact.

Your supposed to target a price and then the stock moves towarrds that price. NOT target a price after the stock already gets there.
Way to go guys… upgrading to 60 after the stock hit 60… no $hit sherlock homes…. LISTEN TO THIS… IVE BEEN SAYING IT FOR MONTHS, RIMM IS GOING UP AND UP, 100 in the next 6 months and 130 in the next year. These are my conservative targets. I could see rim hit 100 in 3 months and 150 in a year. QUOTE ME… ill be all over these blogs from now on… I sat on the side lines and read brainless crap from analysts and comments from readers far too long.

Apr 03 03:42 PM

[Kenan A.:]

.crazylegs.... I agree with you. I didnt even want to mention Ehud Gelblum from J.P. Morgan...

Can he come up with one good reason... other than that garbage financial mumbo jumbo...

lets talk technology, lets talk fundementals, lets talk demand, lets talk about what sets RIMM apart from the rest.

Lets NOT talk about gross margins that went down 5% and complain about that when this company has doubled its sales, profit, workforce and subscribers all in the last year... oh wait... they have been doubling for the last few years.

Go balance some some sheets or something EHUD

Apr 03 03:48 PM

[tginomorebush:]

savitz with a positive report........ will wonders never cease ...... barrons long rimm or needs to recoup losses ........ savage savitz has a method to his madness ...... notice that his "reports" never include his or barrons position??

Apr 04 08:33 AM