Monday, April 02, 2007

Calls of Note Part 3

- Merrill Lynch notes that based on industry checks at the recent CTIA conference, they believe Research in Motion (NASDAQ:RIMM) is uniquely positioned to benefit from a multi-year acceleration in smartphone sales. RIM's new products featuring multimedia, GPS and mobile commerce capabilities that leverage RIM's secure network infrastructure will drive its next leg of growth, in firm's opinion. MLCO is raising CY07 pro-forma EPS estimate by 6% to $4.48 and CY08 EPS by 15% to $6.08. Reiterates Buy, $165 PO (~21% potential upside.)

Smartphones comprise six of top ten bestselling mobile phones on, including four Blackberry models. IDC projects smartphone shipments in RIM's core markets (US, Canada, W. Europe) to accelerate from 39% growth last yr to 50%+ CAGR for the next two years. If RIM can expand its core market share from 23% (current model) to 29% in CY08, they estimate earnings power of about $7, which puts theoretical upside for RIM stock at $175-210 on 25x-30x CY08 PE. RIM's compelling new portfolio, and consistent underperformance by rivals Palm, Motorola, and Nokia gives the firm confidence that RIM can gain meaningful share.

Firm looks for two positive catalysts near term: 1) RIM's FQ earnings call on 11-April; and 2) Potential launch of Verizon/Sprint Pearl and T-Mobile 83xx WiFi Blackberry on 7-May, coinciding with RIM's Capital Markets Day. MLCO recommends buying May US$140.00 call options ahead of the upcoming catalysts.

Notablecalls: Despite the fact MLCO's call contains nothing new, I expect to see some buy interest in RIMM today. Vivek, why not up your tgt on RIMM? That would give the call a lot more credibility.

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