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A RIM BlackBerry smart phone. Deborah Baic/The Globe and Mail (Deborah Baic/The Globe and Mail)
A RIM BlackBerry smart phone. Deborah Baic/The Globe and Mail (Deborah Baic/The Globe and Mail)

Eye on Equities

RIM still a sell even as stock tanks to fresh lows: NBF Add to ...

So how has Research In Motion Ltd. stock held in during the past week’s market mayhem? Not well.

Shares are continuing to sink, flirting today with levels not seen in more than half a decade and coming precariously close to the $20 (U.S.) level. That’s less than one-third of where they were just this past February.

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That’s also significantly lower than National Bank Financial analyst Kris Thompson’s target price of $25 - and he’s been one of the most bearish on RIM on the Street. The median target price of 43 analysts tracked by Capital IQ is $35.

The difference between the stock price and Mr. Thompson’s target is wide enough to suggest a possible upgrade (he currently rates RIM as “underperform” - equivalent to a "sell").

But while conceding he’s been “humming and hawing over RIM’s seemingly low stock price,” Mr. Thompson isn’t budging. After taking another analysis of the smart phone market, he still believes investors should stay clear.

“We were considering upgrading our recommendation to ‘sector perform,’ but the data points ... point to continuing market share erosion, an inferior smart phone product portfolio and ongoing momentum of consumer interest in the iPhone and Android handsets,” he said in a research note today. “The end result of these factors is that EPS estimates are at risk of being optimistic.”

The consensus earnings per share estimate is $5 for each of the next two fiscal years. With today’s trading price, that makes for an appealing price-to-earnings ratio that - for some - screams that the stock is undervalued.

But Mr. Thompson points out that RIM’s global market share has fallen from about 20 per cent over a year ago to 12 per cent today. “And we believe it will fall to below 10 per cent and remain there.”

He thinks it’s possible RIM will beat expectations for the second quarter, which ends at the end of this month and is reported on Sept. 15, thanks to the company launching its BlackBerry 7 smart phones a little earlier than expected late this month. But ultimately, sales will disappoint, he says, as the BlackBerry 7 smart phones are “way behind the competition,” especially in terms of browsing and apps.

“This could set the stock up for a near-term bounce and then a retrenchment on weaker-than-expected sell-through,” Mr. Thompson said.

Further out, he’s not optimistic either about QNX, RIM’s update of its core operating system scheduled for next year.

“We believe the smart phone sector is moving into a new paradigm of lower margin pricing as Android handsets attack the high, mid and low-end market segments. We do not expect RIM’s gross margins to rebound; we expect competition and the QNX-based phone launches to pressure margins even lower. We do not believe that BlackBerry 7 handsets will be that successful; the hardware, software and ecosystem lag the competition.”

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Cameco Corp. shares have fallen to an attractive entry point for investors, said Canaccord Genuity analyst Orest Wowkodaw, who upgraded the uranium producer to a “buy” from a “hold.” “While Cameco continues to trade at a premium to the producer peer group, this is supportable in our view, given the company’s dominant market position, low political risk profile, and significantly larger market capitalization,” Mr. Wowkodaw said.

Upside: Mr. Wowkodaw reiterated his $29 price target.

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Raymond James Ltd. analyst Frederic Bastien downgraded Armtec Infrastructure Inc. to “market perform” from “outperform” following “yet another dreadful quarterly performance.” Armtec’s second-quarter EBITDA of $3-million was one-third of consensus forecasts, mainly due to ongoing pressure on margins at its engineered solutions business. “We advise investors to stay away from Armtec as we don’t see anything moving its stock in the short run,” he said.

Downside: Mr. Bastien slashed his six- to 12-month target price by $2 to $3.

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Golden Star Resources Ltd. reported second-quarter earnings below Street estimates and Raymond James analyst Brad Humphrey believes the company will continue to struggle to control costs over the next several quarters. “Although there was some modest improvement on the operating front quarter over quarter, we are maintaining our wait and see stance on Golden Star, and given we do not view the risk/return ratio as favourable at current levels, we are maintaining our ‘market perform’ rating."

Downside: Mr. Humphrey cut his price target to $3 from $3.65 (U.S.)

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TD Newcrest analyst Doug Young has reduced his assets under management and earnings estimates on CI Financial Corp. given the recent market volatility. The fund company saw administrative expenses climb in its second quarter as it built out its investment management and sales platforms, and this will likely continue to weigh on margins in the near term, he commented.

Downside: Mr. Young cut his price target by $3 to $24 but reiterated his “buy” rating.

Follow on Twitter: @eyeonequities

 

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