RIM: Proceed with Caution

Since reporting earnings after the close on June 18, shares of Research in Motion, Ltd. (RIMM) have fallen, trading as low as $67.53 intraday on June 23 then rising notably on June 30 thanks to initiation of coverage by BMO Capital Markets. The financial services and research firm reportedly gave the tech stock an outperform rating and a price target of $100.00. But the stock slid over the succeeding five sessions and is up 2% today.

The June 18 report for RIM’s first fiscal quarter cited a 33% jump in earnings. RIM said it earned $643 million, or $1.12 a share, compared to earnings of $482.5 million, or 84 cents a share, for the same period the previous year. Revenue jumped 53% to $3.42 billion for the quarter. It was RIM’s forward looking guidance that pushed shares down; the company is expecting lower revenue and earnings in the coming quarter.

Shares of RIM are up nearly 80% year to date and if BMO’s projection is to prove accurate, investors who buy RIM at current prices would capitalize on an opportunity to achieve a 4O%+ gain. If you had been alert enough to have invested in RIM at the 52 week low of 35.05 achieved March 9, 2009 and if you were to continue to hold until the shares do reach $100.00 then you will have nearly tripled your investment.

These are already quite substantial returns. In spite of BMO's bullish outlook one must proceed with caution. With consumer confidence again on the decline as evidenced by last weeks Consumer Confidence Index reading of 49.3 versus a downwardly revised 54.8 in May, with stiff competition in the Smartphone market, with the aforementioned lower earnings expectations and despite the coming launch of the new Blackberry Tour Smartphone, you have to wonder whether RIM’s stock price will achieve such lofty heights anytime soon.

Disclosure: I own no shares of RIMM.

Comments

[huntergirl:]

you can wonder about lots of things in life, but smartphone adoption is not one of them. and rimm is most definitely one of the leaders and will continue to be. and if it takes a while for rimm to reach 100, so what. in spite of you and many others, putting your oney to work as an investmen does not necesaari;y mean we have to get these outsized returns within weeks. go find other firms increasing their eps and revenues at the pace that rimm is and see how many companies you come with. probably no too many. no wonder they say "it's lonely at the top." there are always people like yourself looking to find fault.

Jul 10 06:06 AM

[Frank Castle:]

I think the biggest thing people seem to forget is the backend RIMM commands. BES 5.0 takes mobile device management to yet another level beyond what anyone else if offering. Enterprises that have a growing smartphone deployment quickly learn they need the ability to manage/secure these devices and RIMM will always be one of the options considered.

While there may now been options available that approach what BES provides they often fall short and have the things you want "planned for next quarter, end of year etc".

Corporations have a wide range of options to pick from so that RIMM keeps that business is a major revenue to them vs. consumer adoption of whatever is the device of the moment.

Jul 10 06:49 AM

[Warm_Paw:]

I'd like to know what Goldman Sach's program trading holds in store for RIMM. I wouldn't be surprised to see them write a massive amount of puts on RIMM, which is actually bullish for RIMM.
Once the puts are written at this lower share price, RIMM's share price takes off and the underwriter keeps all the put premiums.
It's all about the banks and AIG.
If the banks continue to shelve marking to market the toxic assets, they will look profitable. If they attempt to deal with these assets, they aren't going to look so profitable. Which means the pain will be held off for another quarter.
The banks are allowed to claim losses as gains in some weird twist of accounting but are hesitant to do so because they then are stuck paying taxes on money they didn't earn.
The whole mess is an absurdity.
So if this quarter isn't dealing with the real underlying problem, RIMM will skyrocket. If banks tank - the whole market will take a hit.
RIMM itself as a company is chugging along as usual. Competitors aren't slowing their growth. The smart phone market is in it's infancy and is growing overall. Even Eric Schmidt uses a Blackberry. So for this quarter, you pays your money, you takes your chances. Nobody knows. Now if we could get that russian guy with Goldman's programmed trading, we could see what they had in store for RIMM.

Jul 10 08:54 AM

[JamesApple:]

The appetite for overall mobile phones is almost saturated as there are almost 270 million handsets in circulation in North America. The retail driven economy had finally come to a grinding halt in 2008 and until Obama's energy and healthcare industries take traction, the over capacities and insolvencies all over America will sink like Atlantis.

5 million new jobs are not enough to slow the momentum of 400000 monthly job losses for the next 3.5 years. Housing market cannot be relieved without job market revivals. Financial market cannot maintain stability without healthy housing market. Toxic assets cannot be fixed without a strong financial market.

Jobs are number 1.

New jobs are needed right now and that means old jobs need renewing, Americans need jobs, and that means local American jobs right now. Apple and Palm, Motorola are American, Rim is Canadian.

Jul 12 12:20 AM

[Hayweed:]

The Tour is just a rehash of the bold so no great new phone. The OS is stretched and the app store is a joke.

Rimm may get the business market but over half of their sales are consumers (think soccer moms). Apple is slowly taking all the high end of the consumer space thus forcing Rimm to price their phones lower and lower.

I think Rimm will start losing sales to consumers to Apple and maybe the hasbeen Palm. Either way, a slow in growth means PE compression and a lower stock price. I am staying short Rimm as they don't have the know how or product to compete with Cupertino.

Jul 12 10:34 PM