RIMM: Multiple Drivers Should Continue to Power Growth

Bear Stearns analysts Andy Neff, Bill Hand and Ted Chung sent a note to clients following Research in Motion’s (RIMM) Q3 earnings report Thursday. Excerpts follow:

Raising to Outperform to Reflect Multiple Drivers; Setting Price Target of $150-$170

• Upgrading To Outperform To Reflect Multiple Drivers. We're upgrading RIMM from Peer Perform to Outperform to reflect the potential for continued high growth as RIMM expands its reach with new products (several expected around May), new marketing programs (lowering price of data), expanding carriers/geos (330+ carriers in 130+ countries with China and India at early stage), and expanding segments (consumer growth exceeding corporate). While stock is up in aftermarket (~$119), we see compelling upside -- we're setting a CY08 price target of $150-$170. Moreover, we think anxiety over economic concerns is overstated given the secular phenomenon of smartphones.
• Where Is RIMM In Its Growth Cycle And What To Pay? The largest challenge is assessing what the right P/E is for RIMM given the multiple drivers, but we think that RIMM falls somewhere between "hyper-growth" and supercharged "growth," but (along w/ AAPL) is creating large new markets which are expanding globally, with diminished competition from mainstream handset vendors and alternate email solutions -- battle is not RIMM vs. AAPL but smartphones vs. conventional handsets.
• 3q08 Results In Line. As for 3Q08 (Nov), RIMM reported post-option EPS of $0.65 (vs. $0.32) on revs of $1.67bn, which was above our $0.64 estimate (Street at $0.62), though lower tax rate and higher interest income added ~$0.03. RIMM shipped 3.9mm handsets, slightly above our 3.8 mm estimates, on ASP of $342. RIMM added 1.65mm net subs, which was slightly below our 1.67mm est.
• Raising Estimates Again. Reflecting RIMM's positive outlook, we're raising our post-option EPS of $2.20 to $2.24 for FY08, from $3.05 to $3.75 for FY09 and from $3.75 to $5.20 for FY10 from higher consumer handsets. For FY4Q08, we're raising our EPS estimate from $0.67 to $0.70.
• Initiating Price Target Of $150-$170. We're setting a CY08 target of $150-$170 based on a 30x-34x P/E (raised from 27x-28x P/E given the multiple drivers) on CY09 op EPS plus ~$4 in net cash/share.

Comments

[Toto-13]

Yeap, check out what Lord Wallaston wrote about RIMM based on Goldmans predictions.....wallas...