RIM shares fall as Morgan Stanley says BB10 'too late'

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Inside the Market's roundup of some of today's key analyst actions

A trio of bullish analyst reports over the past week helped breathe new life into Research In Motion Ltd. shares, but today sentiment has turned sour.

Investors appear to be taking the advice of Morgan Stanley analyst Ehud Gelblum, who this morning suggested they take profits because he believes the much-hyped BlackBerry 10 is doomed to failure. CNBC's Jim Cramer did his part, reiterating his sell recommendation on Monday. The actions bring into focus that despite the recent bullish analyst reports grabbing investors' attention, the Street is still overwhelmingly negative on RIM's turnaround story.

But the biggest drag on the stock today appears to be a report from Kantar Worldpanel ComTech that found the BlackBerry's market share in the U.S. has fallen to a tiny 1.6 per cent, as Apple Inc.'s iPhone continued to win over consumers with its new models.

TSX-listed shares closed down 10 per cent on Tuesday at $10.70, their lowest level since Thursday.

Morgan Stanley's Mr. Gelblum noted that RIM's stock is up more than 50 per cent over the past month, even as the Nasdaq declined 1.5 per cent. A lot of that buying enthusiasm was tied to optimism over the new BlackBerry 10 devices, which received generally positive reviews and prompted several analyst price target hikes.

Mr. Gelblum isn't nearly as enthusiastic.

"We continue to believe BB10 has a low chance of success," Forbes.com quoted him as saying in a research note. "While some of the new features on BlackBerry 10 seem innovative, we had a similar reaction to Palm's WebOS when we saw it at CES (the Consumer Electronics Show) in 2009. Ultimately we believe BB10 is too late."

He noted that a global mobile workforce survey in mid-October found that just 5 per cent of respondents expect to upgrade to a BlackBerry.

Morgan Stanley's checks with developers, meanwhile, found limited interest in supporting the BlackBerry 10, which is due to hit store shelves on Jan. 30. He contends the stock remains "uninvestable in the near-term." He maintained an "underweight" rating and $7 (U.S.) price target.

The report from Kantar Worldpanel ComTech illustrated the much-eroded position RIM is trying to build from. It found the BlackBerry's U.S. market share dropped 6.9 percentage points during the 12-week period ended Oct. 28 when compared to a year earlier. During that time, the market share of Apple's IOS devices grew to 48.1 per cent from 22.4 per cent, thanks in part to new devices. The market share of Android devices fell to 46.7 from 63.3 per cent.

Despite the most recent batch of analyst price-target hikes, the average estimate on the Street right now is $9.14 (U.S.), nearly unchanged from five months ago, according to Bloomberg data. Those recommending the stock are in the minority; there are six buy ratings, 28 holds and 16 sells.

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A $7.8-billion business jet order for Bombardier Inc. confirms its "strong market leadership in the high-end segment," said Desjardins Securities analyst Benoit Poirier.

"Based on the firm order for 56 aircraft, we estimate the company will have about 190 global aircraft in the backlog, representing about 41 months of production, assuming 56 global aircraft are delivered in 2012," Mr. Poirier wrote in a research note. "We would also expect positive implications on free cash flow as this order should provide Bombardier with cash from customer advances."

Upside: Mr. Poirier rates Bombardier "buy" and has a $6 price target on the stock.

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Gildan Activewear Inc., which reports fourth-quarter earnings on Thursday, will benefit from a recovery in U.S. consumer demand as well as "tight inventories" in the apparel segment, Raymond James analyst Kenric S. Tyghe said.

Despite the possibility of "modest promotional pricing... the increase in our earnings per share estimate from $2.42 to $2.57 appears well supported, given the current cotton curve," Mr. Tyghe wrote.

Upside: Mr. Tyghe raised his price target to $36 (U.S.) from $34 and rates the stock "outperform."

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RBC Dominion Securities analyst Paul Treiber upgraded Open Text Corp. to "outperform" as the software firms nears completion of its organizational changes and sales force transition.

"We believe investors may begin to look through tough near-term results as they perceive Open Text's strategic transition is closer to the end than the beginning," Mr. Treiber commented. "Open Text has significantly deepened its management bench, is instituting a culture of discipline to drive improved performance, and is moving to capitalize on its unique competitive advantages in the emerging EIM (enterprise information management) market."

Upside: Mr. Treiber raised his price target by $10 to $70 (U.S.).

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Osisko Mining Corp. has agreed to buy Agnico-Eagle Mines Ltd.'s 9.2 per cent stake in Queenston Mining Inc. for $42.3-million. Agnico-Eagle had been the most logical third-party suitor for Queenston Mining, said Desjardins Securities analyst Adam Melnyk. But that no longer appears to be a possibility, and "consequently, it is our opinion that the likelihood of a potential competing bid for QMI has been greatly reduced," he said.

Upside: Mr. Melnyk reiterated a "hold-speculative" rating and $6 (Canadian) price target.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities