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RIMM Fundamentals Strong

|Includes: AAPL, BlackBerry Ltd. (BB), NOK, PALM
RIMM
Research in Motion
 sold off after by more than 20% after the latest earnings release but the fundamentals remain strong.

Revenue for the second quarter was $3.53 billion, up 3% from $3.42 billion in the previous quarter and up 37% from $2.58 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 81% for devices, 14% for service, 2% for software and 3% for other revenue.

During the quarter, RIM shipped approximately 8.3 million devices.  Approximately 3.8 million net new BlackBerry® subscriber accounts were added in the quarter.  At the end of the quarter, the total BlackBerry subscriber account base was approximately 32 million.

The long-term performance of RIMM is stronger than it’s competitors.  If you look at the year-over-year revenue growth for RIMM, NOK, PALM you see that RIMM is growing much faster.

RIMM provided solid guidance for the third quarter with revenue expected to be in the $3.60 to $3.85 billion range.  They expect gross margins to remain steady at 43% and are predicting 4M to 4.3M net new subscribers for the quarter bringing the total to 36 million subscribers.  Earnings per share is expected to be in the $1.00 to $1.08 per share diluted range.

RIMM is currently trading at ~18 times earnings with a year-over-year revenue growth rate of 37%.  This puts the PEG ratio below .50.  The general rule for the PEG ratiothat any time a stock is trading below 1 it may be attractive.

If you run a standard Discounted Cash Flow on RIMM you will see that the stock looks very attractive in the low $60’s.  We would be adding RIMM in the low $60’s

The analysts that cover RIMM have the median price target at $93 with the highest target at $150.  We see fair value in the $90 to $100 range.

Disclosure: No Position in RIMM.