Shares of Research in Motion (RIMM) have given up some gains in the wake of yesterday’s big surge in the stock, falling 56 cents, or 3%, to $17.34, amidst mixed perspectives on the public debut next Wednesday, January 30th, of its BB10 operating system update for the BlackBerry.
As I mentioned earlier, RBC Capital‘s Mark Sue raised his price target on the shares to $19 from $11, writing that citing greater carrier support for forthcoming BB10 hardware and subsidies that may help the device hit a price sweet-spot. Prospects for BB10 prompted Scotia Capital’s Gus Papageorgiou yesterday to raise his rating on the shares to Sector Outperform.
Citigroup‘s Jim Suva was a dissenting voice last night, reiterating his Sell rating and urging investors to consider the prospect the higher-profit services business will be under pressure even as BB10 rolls out.
Bernstein Research‘s Pierre Ferragu today weighs in, reiterating a Market Perform rating and a $12 price target, while repeating his perspective that the “stock has a strong short term appreciation potential, as the impact of the Blackberry 10 launch on the financials of the company remains overlooked.”
Reviewing what he calls positive “news flow,” Ferragu notes the interview Monday by CEO Thorsten Heins with German newspaper Die Welt, in which he repeated that the company has not ruled out various options such as licensing its software; the availability of the latest “BlackBerry Enterprise Server” software; the addition of 15,000 new programs for BB10 over the weekend; the signing up of 1,600 companies to take part in the BB10 training program; recent screen shots of the BB10 user interface; and a BB10 “walk-through” video posted on the Web.
The result of having drained existing BlackBerry inventory, and selling higher-margin BB10 units, is that RIM could earn $1.30 per share in profit in the fiscal year ending February of 2014, rather than the net loss of 46 cents the Street is modeling, Ferragu writes, which could boost the stock to $25:
With Blackberry 10 quarterly shipments ramping up from 3m units in 1QFY14
to 6m in 4QFY14, assuming gross margins for Blackberry 10 devices starting at 30% and coming down to 25% in 6 months, and Blackberry 7 gross margins stabilising at 15% over time, this would drive a FY2014 EPS of close to $1.30, even assuming Blackberry 10 users generate 50% less service revenues. If such a scenario gets priced in, we believe the stock can get to the $20-$25 range, or about 15x to 20x these post-turnaround earnings level and ~1x sales. This would be our price target on a 3-6 month horizon, if any such thing existed.
Still, he thinks it’s most likely the company doesn’t get sufficient traction with BB10:
Unless we see material signs of traction of Blackberry 10 in the high end and with Consumers, the company would be set to disappoint in the second half of the year with early signs of weakening traction. We would therefore recommend selling the stock once we have good indications that consumer traction isn�t there, which remains at this stage our most likely scenario.
This Morning: A-Day Arrives, More RIM Hope, Google Rising
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