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Play of the Day: RIMM may hold value at these prices

|Includes: BlackBerry Ltd. (BB)

Guest Analyst: Tim Biggam, TradingBlock  (June 23, 2011, 4:04pm CDT)

Symbol Analyst Target Price Target Date
RIMM $32.00 Dec. 15, 2011

Research In Motion Limited (ticker: RIMM) designs, manufactures, and markets wireless solutions for the worldwide mobile communications market. The company, through the development of integrated hardware, software and services, provides platforms and solutions for seamless access to time-sensitive information, including email, phone, short messaging service, and Internet and Intranet-based applications and browsing.

Its products and services principally comprise the BlackBerry wireless platform, the RIM Wireless Handheld product line, software development tools, and other software and hardware.

RIMM reported earnings last week. Net income came in at $695 million, or $1.33 per share, while revenues grew by 16% to $4.9 billion. For the fiscal year ending next February, RIMM said it now expects earnings to come in the range of $5.25 -$6.00 per share. The company had previously maintained a full-year EPS forecast of $7.50, though consensus estimates had the number at $6.31 prior to last Thursday’s report. Yesterday, RIMM also announced that annual sales targets for their latest tablet, PlayBook, would be roughly 800,000-900,000, compared to earlier projections of 2.4 million.

RIMM shares, however, found some footing around the 28 level, with the stock up over the past few days. With the stock now trading at its lowest level in nearly 6 years, and down some 60% so far this year alone, we think that valuations have become compelling. At these levels, RIMM now trades at less than 5-times next year’s earnings. By comparison, Nokia, another company with similar competitive issues, has a forward P/E of over 14. RIMM also generates nearly $3 billion in free cash flow, combined with almost $7 per share cash. Additionally, the stock has gotten some takeover chatter lately, with Dell and Microsoft as the two most likely suitors.

We think that, even with all the concerns surrounding the company’s growth prospects, the price of RIMM shares have been unduly punished and reflect an Armageddon-like scenario. We look for RIMM shares to slowly grind their way higher from the present 28 range to 32 by the end of the year.

Play of the Day

Based on Research in Motion's (ticker: RIMM)) current market price of $29.77 and using a target price of $32.00, a target date of December 15, 2011 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date. Powered by TradingBlock's TradeBuilder 

Stock/ETF Symbol RIMM
Analyst Target Outlook $32.00 by Dec. 15, 2011
Strategy (click for details) % Return at Target Probability of breaking
even or better
Sell Dec Iron Butterfly +164% 56%
Buy Dec Put Butterfly +156% 56%
Buy Dec Call Spread +84% 63%
Buy Stock +7% 60%

* Subject to change due to changing market conditions.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.