Inside the Market’s roundup of some of today’s key analyst actions.
Canadian tech giant Research In Motion Ltd. has been handed a Canada Day lashing by several analysts in the the wake of its dismal quarterly results on Friday, with several major research houses cutting their ratings or price targets.
Shares in the company closed down 1.6 per cent Monday on Nasdaq at $10.29 (U.S.), adding to losses of 28 per cent on Friday.
RIM reported adjusted losses of 13 cents per share for the three months ended June 1, far missing the 4-cents-per-share profit forecast by analysts. Even more disappointing to many, RIM said shipments of its new BlackBerry 10 devices were only 2.7 million, below the consensus view of 3.3 million. It also projected an operating loss for the current quarter.
Among analysts reacting to the results today was U.S. giant Morgan Stanley, which upgraded the BlackBerry maker two notches to the equivalent of a buy rating from the equivalent of a sell back in March. At the time, it said it expected slow but steady traction of its new BlackBerry 10 devices. Today, Morgan Stanley analysts downgraded RIM to “equal weight,” commenting that it no longer thinks RIM’s smartphone business will break even.
“We fear enterprise and consumer opinion of BB10 could have been materially harmed by Friday’s earnings, which if left unaddressed, could negatively influence the actual performance of the business,” the Wall Street Journal quoted Morgan Stanley analysts as saying.
The influential research division of Deutsche Bank also downgraded RIM today, cutting its rating to “sell” from “hold.” It also slashed its price target by $2 to $6 (U.S.).
Hudson Square Research downgraded RIM to “sell” and Needham cut its rating to “underperform” from “hold.” Elsewhere, Citi cut its target by $1 to $9 and reiterated its “sell rating. Jefferies maintained a “buy” rating but slashed its price target to $18.
And Credit Suisse trimmed its price target by $1 to $9.
“Despite the significant post-earnings reaction, we continue to see further downside,” Credit Suisse analysts wrote. “We believe Q1FY14 results highlight the challenges for BB10, as after significant marketing campaigns and a new portfolio, units were still only 2.7 million, light of expectations. We also believe fiscal cash flow burn of about $350-million (ex the tax receivables benefit) is worrying. Further, the changes in the company’s services business will result in a significant decline in this high margin revenue stream, driving operating losses and potential cash burn,” Credit Suisse analysts wrote.
Needham analyst Chairlie Wolfe had even harsher words for RIM, believing that the BlackBerry 10 devices just aren’t good enough to turn the struggling tech firm around.
“In our opinion the fault lies with the devices themselves,” Mr. Wolfe said. “While they generally received favourable reviews, neither has a ‘wow’ factor that would translate into a ‘no-brainer’ upgrade. And in the case of the application library and ease of use, we find the BlackBerrys to be no match for the iPhone and Android phones. We now believe the upgrade cycle of the Q10 in the second and third quarters could create a ‘false spring,’ with sales tapering off once pent-up demand is satisfied.”
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