RIM: The bulls cave in

Share

The remarkable development in the Research In Motion Ltd. story on Friday morning isn't so much the profit warning that the BlackBerry maker issued the previous day, but rather the fact that once-bullish analysts are throwing in the towel on the company. One guy even said he was "wrong" about the stock - which is quite the word for an analyst to utter.

There have already been four notable downgrades of the stock. Mike Abramsky at RBC Dominion Securities, cut his recommendation on the stock to "sector perform" from "top pick." He also cut his target price to $55 (U.S.) from $90.

"Our prior Top Pick rating was based on 1) fundamental value not reflected in 8x valuation; 2) new products restoring momentum and investor confidence," Mr. Abamsky said in a note. "We were wrong, as mis-execution has undermined sentiment recovery. Our sector perform rating reflects our view that RIM shares will likely remain pressured pending improved investor visibility on the company's earnings momentum."

Meanwhile, Peter Misek at Jefferies cut his recommendation to "underperform" from "buy" and reduced his target price way, way, way down - to just $35 from $80.

Richard Tse at Cormark Securities cut his recommendation to "reduce" from "buy" and reduced his target price to $45 from $75. And, as my colleague Sonali Verma pointed out earlier this morning, Kris Thompson at National Bank Financial cut his recommendation to "sector perform" from "outperform" and reduced his target to $50 from $80.

Add up all these changes, and you can see a trend: A number of analysts who had been standing by RIM as a viable smartphone competitor and up-and-coming tablet computer maker have caved.

If you're one of those brave souls who just needs to take a contrarian approach to the stock market, there might be some good news here: If all the bullish analysts have changed their tune on the stock, then this could be near the moment of total capitulation on RIM - in other words, the bottom of a long slide in the share price.

Unfortunately, there is another matter to consider here, and that is the secular backdrop to RIM's market. Is Thursday's profit warning an early sign that it just can't compete?

While Mr. Thomson's downgrade to "sector perform" sounds relatively optimistic about RIM's prospects, his commentary is withering: "We've lost confidence in RIM and don't see this as a one-time miss," he said in a note. "We've heard for too long about RIM's great product roadmap. Consumers are not listening nor waiting."