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Stuck in the BlackBerry Patch

|Includes: AAPL, BlackBerry Ltd. (BB), GOOG

Is this the bottom for $RIMM or is this icon set to explode?

 

By:  Jonathan A. Parker

 

I am often asked “Is this really the end of BlackBerry?”  I always answer this question the same way with my typical yes and no.  Yes, it is true that RIMM has lost market share to other makers such as AAPL and GOOG, but there is some sun shining still in the BlackBerry Patch.   RIMM is an icon and still represents 20% of the smartphone market and their users are among the most loyal.  BlackBerry is the champion of corporate America, for its ease of use and IT Coordinators have touted the BlackBerry’s ease of networking ability (tethering) and security of corporate email.   However, RIMM has experienced many setbacks over the past year, most recently over the past week.  This leads us to the question of RIMM’s value, target price, and whether to stake a position at this level of 22.79 a share?

 

Metrics

RIMM is set to earn $5 a share over the next four quarters and that leads us to have a current multiple of 4.56X’s forward earnings.  Competitors such as AAPL and GOOG are trading at a much higher multiple than that of RIMM.  Also worth noting, in 2012 RIMM will launch its new operating system for their devices called BBX.  This software is designed to compete with the likes of Android and Apple’s IOS 5.  Below I have attached the fundamentals and metrics that show RIMM with a solid balance sheet and the pattern to remain a strong force in the ever growing smartphone space.

 

Valuation Measures  

Market Cap (intraday) 5: 11.86B

Enterprise Value (Oct 23, 2011)3: 10.71B

Trailing P/E (ttm, intraday): 4.16

Forward P/E (fye Feb 26, 2013)1: 4.76

PEG Ratio (5 yr expected)1: 0.51

Price/Sales (ttm): 0.58

Price/Book (mrq): 1.17

Enterprise Value/Revenue (ttm)3: 0.53

Enterprise Value/EBITDA (ttm)6: 2.07

 

Financial Highlights  

 

Fiscal Year

Fiscal Year Ends: Feb 26

Most Recent Quarter (mrq): Aug 27, 2011

 

Profitability

Profit Margin (ttm): 14.25%

Operating Margin (ttm): 19.48%

 

Management Effectiveness

Return on Assets (ttm): 20.07%

Return on Equity (ttm): 33.49%

 

Income Statement

Revenue (ttm): 20.13B

Revenue Per Share (ttm): 38.46

Qtrly Revenue Growth (yoy): -9.80%

Gross Profit (ttm): 8.82B

EBITDA (ttm)6: 5.16B

Net Income Avl to Common (ttm): 2.87B

Diluted EPS (ttm): 5.48

Qtrly Earnings Growth (yoy): -58.70%

 

Balance Sheet

Total Cash (mrq): 1.15B

Total Cash Per Share (mrq): 2.21

Total Debt (mrq): 0.00

Total Debt/Equity (mrq): N/A

Current Ratio (mrq): 1.94

Book Value Per Share (mrq): 19.05

 

Cash Flow Statement

Operating Cash Flow (ttm): 2.95B

Levered Free Cash Flow (ttm): 401.17M

  

Chart Watch

Below is a chart of the past 6 months of RIMM.  We can reasonably assume that RIMM will not trade below its book value of $19.05 a share and we can also assume that if RIMM trades at the same multiple as its competitors than we should see $38 to $45 a share as the high level.  Here is a chart that will demonstrate the movements of RIMM over the past 6 months.

 

 

 

 

Trade Theory

So with RIMM trading at $22.74 a share, and the bottom (fundamentally speaking at the book value of $19.05) we can assume there is $3.69 of downside risk and (assuming $38 as the price target with NOK multiple) $15.26 of upside risk.  This is a payout, or risk/reward of 1 to 5.  Also worth noting, RIMM is a very good takeover target because of the patents and intellectual property they bring.  The price target that I have set for a takeover bid is $45 a share.  This would mean a tremendous upside potential for profits, with minimum downside risk.  I am bullish on the stock moving higher from here and I believe that the rewards will far out way the risk.  When trading a stock like RIMM, you want to set your STOP at $18.75 and the LIMIT at Trailing above $28 a share.  This is the way to ensure profits, while taking out the risk.  It is always important to know your risk upfront and protect the profits as they become evident.  RIMM is a long term trade over the next 6 to 10 months, and I am confident that this Blackberry Patch will turn into a goldmine if you let it.