Research In Motion Ltd.
Last close: $15.18 a share
52-week trading range: $6.10 to $18.53 a share
Annual dividend: none
Analysts’ ratings: There were nine buys, 15 holds and 21 sells, according to Bloomberg data. Target prices ranged from $5.07 a share as estimated by Berenberg Bank analyst Adnann Ahmad, to $22.35 by Scotia Capital Markets analyst Gus Papageorgiou.
Recent history: Shares of the Waterloo, Ont.-based maker of the BlackBerry smartphone hit a 52-week low last September, but have rallied back to garner a 19.5 per cent gain over one year. The stock had suffered because of delays in launching its BlackBerry Z10 mobile touch-screen device, but began moving higher on growing optimism that it would make its Jan. 30 target-date launch. Research In Motion, which informally calls itself BlackBerry, surprised the Street last week with a return to profitability and gross margins of 40 per cent when it reported its fourth-quarter earnings. The results drew mixed reviews from analysts, with some concerned that the firm’s subscriber base had also fallen by three million customers to 76 million during the latest period. The fourth quarter does not include the U.S. launch of the new BlackBerry on March 22.
Manager insight: The overall sentiment towards RIM is still very negative when looking at analysts’ ratings, but it’s not time to hang up on this stock, says Steven Palmer, a hedge fund manager and president of AlphaNorth Asset Management Inc. “I am still bullish.”
The rollout of the new BlackBerry is being done in stages, but it is the BlackBerry Q10 keypad version, to be launched this month, that “is really the device that everyone is waiting for,” said Mr. Palmer, who owns shares in RIM. (He has been trading the stock for more than a year and a half, and bought his largest position last September when RIM fell to just below $7 a share. He sold almost half of his position when it hit the $15 range.)
BlackBerry is know for its Qwerty keyboard, so “I think there is a huge number of BlackBerry users who are going to want the new device,” he said. The company has more than 70 million subscribers, so just the upgrades from those consumers are “enough to have a significant positive benefit for BlackBerry in their revenue and bottom line,” he said.
With the fourth-quarter results surprising analysts with a profit of 19 cents a share against a loss of 24 cents a year earlier, “that is very signficant, given that they didn’t even have the new product [effectively] launched,” he said. “There were hardly any sales of the Z10 at that point, and there was low expectations for the sale of the old product.”
It’s hard to value RIM’s stock now because analysts’ estimates are all over the map, but one has to keep in mind that 40 per cent of RIM’s market value ($3-billion U.S.) is actually in cash, he said. It is generally the U.S. analysts who are “negative on RIM,” he noted. “I went through this in the late ’90s with Palm, that has basically gone to zero. The U.S. analysts were very bullish on Palm, and negative on RIM at that time or not as positive. Clearly RIM won that battle.”
His back-of-the envelope target for RIM is the mid-$20 range. “It doesn’t mean that I am going to sell when it gets there, but that is the nearer-term potential for the stock,” he said. “It’s quite volatile, but you can’t really watch and worry about the daily fluctuations. I would have no problem buying it right now at roughly $15 a share.”
RIM shares seem to have declined on multiple occasions to the $13 level where it has bottomed, he said. “That seems to be a support or entry point that has worked. But I don’t think it will get there. If I am correct, and the stock is going to continue to go up, the next inflection point should be higher than $13, so I would probably use $14 as a good entry point.”