The shares of Research In Motion Ltd. soared yesterday to their highest close in three years on a flurry of "buy" ratings, defying concerns about valuations and a patent dispute.
Shares of the Waterloo, Ont.-based maker of the BlackBerry handheld wireless device rose 7 per cent on both the Nasdaq Stock Market and the Toronto Stock Exchange. RIM rose $5.61 (U.S.) to $90.76 in heavy trading of more than 10 million shares on the Nasdaq Stock Market. The stock has climbed a whopping 588 per cent in value over the past 12 months.
On the TSX, the shares rose $7.66 (Canadian) to $119.50.
RIM's market capitalization is $7-billion (U.S.). As of Nov. 29, the company had 865,000 subscribers for the BlackBerry and trailing 12-month revenue of $471.6-million.
Yesterday's price increase was sparked by new coverage by Banc of America Securities. The New York brokerage began RIM coverage with a "buy" rating, setting a 12-month price target of $118.
"Although the stock has had a great run, we expect more upside as enterprises, carriers and licensees ramp [up]BlackBerry service," said Banc of America's Tim Long in yesterday's report.
The investment community is embracing the company's aggressive growth story, said Deepak Chopra, an analyst at National Bank Financial Inc. The company's annual sales are expected to climb to more than $1-billion in fiscal 2005, up dramatically from about $22-million in 1998. Profit per share is expected to double over the next two years. He has a "buy" rating on the shares and a $125 (Canadian) 12-month price target.
Michael Abramsky, an analyst at Canaccord Capital Corp. in Toronto, argues the wireless data market for RIM's products "is just taking off." He expects strong subscriber growth -- the company will soon surpass the one-million-customer mark -- will outweigh pressure on the company's operating profit margins, a lofty 47 per cent in the most recent quarter. Mr. Abramsky is revising his $85 (U.S.) price target and is maintaining his "buy" rating.
The stock price gains follow a $945-million share issue concluded Jan. 21 for net proceeds of $907-million. The Street's initial concerns about dilution were short-lived. Despite increasing the company's number of outstanding shares by about 15 per cent, the issue provides "tremendous financial strength" to the company, said Orion Securities Inc. in a Jan. 22 report. RIM has a war chest of about $1.4-billion.
Orion, along with National Bank, Banc of America, Canaccord and 11 other brokerages, underwrote the RIM offering. The 15 brokerages split about $38-million in fees.
J.P. Morgan Securities Inc. -- a brokerage left out of the stock offering -- is among the handful of firms questioning RIM's valuation. In a Jan. 13 report -- written when RIM shares were $78 -- the brokerage notes that RIM trades at a premium of about 40 times estimated profit per share for fiscal 2005. "The good news is now largely priced into the stock," J.P. Morgan notes.
And unlike its Wall Street rivals, the brokerage considers a potentially grim outcome to a continuing U.S. patent dispute. Last year, a Virginia court banned RIM's BlackBerry line from the United States and awarded holding company NTP Inc. $53.7-million in damages and costs. The injunction was immediately stayed pending RIM's appeal and U.S. BlackBerry sales continue.
While many are predicting an out-of-court settlement or a royalty agreement, J.P. Morgan considers the worst-case scenario -- the end of U.S. BlackBerry sales, the source of more than 80 per cent of revenue in fiscal 2003.
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