Analysts Scale Back Price Targets on Research In Motion

Includes: AAPL, BB, GOOG
by: Alacra Pulse Check Blog

By Sheena Lee

Research In Motion (RIMM) gave a weaker than expected first quarter profit forecast and analysts flocked to cut their price targets on the Waterloo, Ontario-based company. Yet on average, they still expect some upside in the BlackBerry and PlayBook company’s stock price in the coming year, despite increasing competition from the likes of Apple (OTC:APPL) and Google’s (NASDAQ:GOOG) Android.

The median price based on 13 analysts tracked by Alacra Pulse who have updated their targets since the earnings announcement is $63.00, down from $78.50 in our February prognosis. The mean target has declined to $66.20 from $78.79. RIM closed today at $57.03. Six of these analysts have Sell or equivalent ratings on RIM, while two are neutral and five are positive.

"With Apple and Android both on a roll in the U.S., we believe RIM will be facing long odds to win back lost customers," said William Power of Robert W. Baird & Co, who downgraded the stock to Underperform from Neutral and cut his price target to $47 from $60. However, in emerging markets, where RIM’s cheaper Curve model has sold well, new Android devices have the potential to take share, he said.

Deutsche Bank analyst Brian Modoff downgraded Research in Motion to Sell from Hold and cut the stock target to $50 from $60 after the company’s fourth quarter results announcement. Modoff also noted that he was concerned with the company’s co-CEO structure and said he believes there is a growing division within the firm.

Pacific Crest analyst James Faucette, who cut the Canadian firm to Sector Perform from Sector Outperform, lowered estimates. "While the PlayBook [tablet] has the chance to reverse Research in Motion’s share losses at the high end of the phone segment, we are skeptical that the company will be able to accomplish this with the current iteration of the tablet," Faucette said.

Colin W. Gillis at BGC Partners reiterated his sell rating and $45 price target on concerns over increased competition from Android products and slowing growth in new subscribers. "Concern on estimate revisions to the downside remain as new smart phone platforms such as Android are taking market share and RIM’s new subscriber growth is slowing and may continue to slow," he said. "Additionally the company could face increasing pressure for its average selling price, and sustained increased in research and marketing spend.

UBS analyst Maynard Um said much hinges on the success and ramp of new product launches in (the second and third quarters) and the success of the PlayBook. "On the latter, management sounds confident though we believe the jury is still out."

Goldman Sachs analyst Simona Jankowski cut RIM’s price target to $57 from $63 and reiterated the bank’s Sell recommendation, while Caris & Co. analyst Robert Cihra reduced his rating to Above Average from Buy and adjusted his target lower to $70 from $75.

Raymond James analyst Steven Li held his price target at $77, and his rating at Outperform, but added that he was not impressed with the first-quarter projections and said: "we are not going to sugar-coat it." As for the full-year forecast, "while this strong guidance reflects management confidence with the engagements it has with multiple carriers, it does set the bar high."

Credit Suisse analyst Kulbinder Garcha maintained an Outperform rating and $85 target and was more optimistic on RIM shares. He said international sales will help the company offset increased competition and a shrinking market share in North America.

"Although RIM’s current portfolio is quickly aging, we see several mid to high end offerings for 2H11…For this reason, we believe that RIM can sustain a 14% smartphone share in the fast growing smartphone market (we expect 52%/32% volume growth in 2011/2012) with North American share loss offset by international share gains," wrote Garcha.

Mike Abramsky of RBC Capital Markets continues to be among the most bullish on the street as he kept his $90 price target and Top Pick Buy for RIM’s stock. "Valuation may remain volatile near-term, however we foresee additional upside as pending launches and Q1 results/outlook help restore confident…Execution remains a risk to our view."

Barry Richards at Canadian firm Paradigm Capital, who owns RIM shares, reiterated his high $105 target and buy rating, noting: "We believe that RIM’s opportunity for strong growth remains intact and the Q4 results certainly support that view."

RIM’s share of worldwide smartphone sales slipped to 14 percent in the fourth quarter from 20 percent a year earlier, according to Canalys, a British research company. Apple’s share was unchanged at 16 percent, while Android’s more than tripled to 33 percent.

Sources: Alacra Pulse, Bloomberg, Zacks, Barrons, The Globe and Mail, Business News Network, Schaffer’s Investment Research.