Is RIMM Still a Buying Opportunity?

by Brad Moon | November 27, 2012 10:36 am

Research In Motion (NASDAQ:RIMM[1]) has had one of its best weeks in recent memory. As analysts upgrade their view on the Canadian company’s chances for a revival when its long-awaited BB10 smartphones launch next Jan. 30, RIMM’s stock has surged. It gained 30% last week, closing Monday at $11.98 (up by another 2.5% over Friday) and regaining the ground it lost over the summer.

If you bought RIMM in September when it was at $6.45, congratulations — you’re up by 86%.

The current rally was sparked by three key analyst communications.

• National Bank Financial analyst Kris Thompson predicted that good reviews of BB10 at launch could see RIMM stock hit $20 next year[2]. He’s now calling for RIMM to ship as many as 35.5 million handsets next year, up from his previous estimate of 31.6 million, and he has raised his own target price on the stock to $15 from $12.
• Jeffries & Co. analyst Peter Misek, known for being critical of Research In Motion, increased his price target to $10 (from $5) and raised RIMM stock rating to hold[3], based on favorable reports from wireless carriers that are now testing the BB10 devices. He also speculated RIMM stock could hits as high as $43 within 12 months if other smartphone manufacturers choose to license BB10.
• CIBC World Markets’ Todd Coupland upped the ante on Monday, citing BB10 features that are compelling enough to “keep its existing subscriber base at the very least.” According to the National Post, Coupland is expecting RIMM shares to hit $17 within the next year, and he’s now looking to the company’s stock to outperform in its sector.

Other press relating to RIMM in recent weeks has been less positive. Pacific Crest analyst James Faucette proclaimed BB10 is likely to be “dead on arrival[4],” while the National Transportation Safety Board (NTSB) announced that it’s ditching BlackBerry devices[5] in favor of Apple’s (NASDAQ:AAPL[6]) iPhone because its RIMM devices were “failing at an unacceptable rate.”

Still, the bad hasn’t overshadowed the good for once, and RIMM has even upped its public relations game, with CEO Thorsten Heinz being “spotted” at an NBA game, snapping photos using what appeared to be a consumer-ready (as opposed to developer alpha) BB10 handset[7].

But for the vast majority of investors who didn’t get in on that 86% jump since September, is the company still a buying opportunity at nearly 12 bucks, or is it likely to lose steam once again?

The BB10 launch is still two full months away. While a lot could go wrong between now and then, you can bet RIMM will be cranking its PR and marketing machine into full gear. Even if BB10 crashes and burns, RIMM stock has room to move up between now and the end of January without seeming overpriced. Remember, although it’s up 30% over the week, it’s still down nearly 30% compared to this time last year, when it was trading near $17.

Todd Coupland was quoted in the Financial Post[8], explaining his target hike on RIMM: “We believe investors should buy the shares at these levels, prior to the BB10 launch,” he said, adding the recent increase in the stock price does not “value an increase in RIM shipments or subscribers.”

In other words, he sees RIMM stock increasing in value based largely on the pre-release hype. I tend to agree with him. After months of seemingly nonstop bad news, RIMM is on a roll, and it should be able to maintain some momentum over the next few months. Distractions like Apple’s iPhone launch and the first wave of Microsoft’s (NASDAQ:MSFT[9]) Windows Phone 8 devices are behind it, and Apple stock has been taking a beating[10] (for a change).

In addition, rumors have been circulating that BB10 may just have a secret weapon. Speculation is that BB10’s QNX core may possibly have some ability to interface with the large number of devices that run on embedded QNX code[11], automobiles in particular (20 million cars sport QNX-based entertainment systems).

A breather from the competition, rumors about secret sauce, tens of millions of users who have been waiting for years to upgrade their BlackBerry devices, some bullish analysts and only two months to the launch of its new platform — this is the perfect opportunity for Research In Motion to build up hype and for its stock to appreciate.

Will a sell-off follow after Jan. 30? Probably. The smart money is buying now, then will sell just after launch, when reports of sellout weekends (filling the pent-up demand for upgrades) are likely to drive RIMM stock up. After profit-taking, the share price will likely drop.

The company will release its fiscal fourth-quarter 2013 earnings report at the end of March 2013. By that time, the new BB10 handsets will have been on the market for two months, and we should have a pretty good idea of how things are going beyond the initial launch excitement. Peter Misek — one of those favorable analysts — tempered his forecast by saying that BB10 still has only a 20% to 30% chance of succeeding[12].

Those with an appetite for risk may want to hold on, but I wouldn’t count on anything like a return to RIMM’s glory days. It’ll have to fight hard to regain any market share — consumer or enterprise. If BB10 can beat out Windows as an alternative to Android and the iPhone, carriers may well help keep Research In Motion on life support, if for no other reason than to have insurance from being squeezed between a rock and a hard place.

That may support a $15 or $20 stock price, but it’s going to take a lot of luck and a lot of things going perfectly for RIMM to climb above that level and stay there.

As of this writing, Brad Moon didn’t own any securities mentioned here.

Source URL: https://investorplace.com/2012/11/is-rimm-still-a-buying-opportunity/

---