Tuesday, June 08, 2010

Research is Motion (NASDAQ:RIMM): Some positive comments ahead of #'s

Research is Motion (NASDAQ:RIMM) is getting some surprisingly positive commentary ahead of its quarterly #'s due out on June 24.

- Credit Suisse is reiterating their Outperform rating and $100 target saying they retain their FY11/FY12 EPS estimates at $5.70/$6.35 which are 6% above consensus respectively and post recent share price weakness they find the current valuation compelling.

F1Q11 results on June 24 should be solid. For F1Q11, CSFB believes that with very low levels of inventory at Verizon heading into the quarter as well as continued strength at AT&T and internationally, overall, that volumes should be strong (they are looking for units of 11.4mn +9% qoq and +46% yoy and would see risks to the upside here). For ASP's the firm expects a decline of 2% qoq to $305 given recent currency moves offsetting the strength of the Bold 9700. Overall, we forecast F1Q revenues/EPS of $4.3bn/$1.34, inline with consensus.

Global volumes potentially still being underestimated. For FY11/FY12 they are looking for RIM to ship volumes of 51mn/62mn (+40%/+20% yoy unit growth) and still believe that there are risks to the upside here. In particular, CSFB believes that current industry smartphone estimates could prove conservative (they are at 230mn/293mn for 2010/2011 or growth of 35%/27%). In addition, they remain confident that RIM's global smartphone share is stable at around 20%, with NA declining (CSFB assumes that a CDMA iPhone will be launched in mid 2011) offset by international momentum from WE currently and then potentially from Asia Pacific over the next 12 months.

Valuation compelling. Trading on a P/E of 8.9x our current FY12 EPS, the firm believes valuation is compelling given a revenue/earnings CAGR of 21%/21% over FY10-FY12, sustainable margins (as services carrying GMs of over 80% rises in the mix from 13% in FY09 to 19% in FY12) and improving FCF conversion (90% over F3Q10-F4Q10).

- BMO Capital Markets reits their Outperform and $92 target on RIMM saying they expect a good quarter with international doing better than North America. Overall, they expect units to be slightly better than their model, with net adds roughly in line. BMO's checks indicate LatAm was once again the fastest-growing region, Europe was above plan for net adds/units despite the weak euro and the economic crisis, and net adds in North America were down Q/Q, although units in North America held up better.

They believe Verizon sell-through remained strong and the weak sell-in from the February quarter does appear to be inventory related. Overall, inventory at Verizon Wireless was down ~25%/$315M from 4Q09 to 1Q10, which is well more than normal. BMO estimates that Verizon's inventory was two million devices lower than typical levels.

Firm expects good guidance due to continued growth internationally as well as recent/upcoming device launches, helping North American results in 2QFY11. The upgrade to BlackBerry 6 and additional new devices should drive a strong holiday season. BMO believes AT&T’s new data plans will benefit RIM as more consumers opt for Smartphones with $15 data plans over Qwerty/Touch Feature Phones with$20-$30 data plans. This segment grew faster than Smartphones in 2009.

- On June 3, Hapoalim's team was out with some positive comments on RIMM saying they believe the Street is still underestimating the growth potential in smartphones, as well as RIM’s ability to hold/gain share, especially in international markets. THey also expect margins to hold firm longer than expected, which all add up to significant upside potential, and rising Street estimates. Firm believes the inverse scenario is still priced into RIMM shares, and urge investors to capitalize on this opportunity to grab a solid large-cap growth name at a discounted value price.

Comfortable with their above consensus estimates. Following their end of quarter checks at US based carriers, Hapoalim remains comfortable with their revenue and EPS estimates of $4.4Bn and $1.39 (versus Street $4.35Bn and $1.36 apples/apples) for RIM’s 1Q11 (May) quarter, as well a their our above consensus view for future quarters.Our US store checks suggest sequential share improvement for RIM. Firm's checks suggest average shelf space increased materially from last quarter, to 27% in May (weighted by carrier market share) from 24% in the February quarter and that most of the improved momentum occurred at Verizon, which was the trouble spot last quarter, and may prove to be a source of upside this quarter.

RIM the major outperformer on the pricing front during its May quarter. RIM’s average price to consumers increased 26% during the May quarter, based on checks. Other than Apple, whose prices remained constant, all other vendors materially increased discounting in the quarter, which suggests to us that demand for RIM products was solid and they likely gained share in the US overall.

Notablecalls: Well, RIMM is now down 10 pts since that Cowen downgrade (to Underperform) on May 20.

While I remain very skeptical of RIM's longer-term fate, given the increasing competition and market saturation, I think there may be a trade with an upside bias here.

If RIM can produce decent results and at least in-line guidance, the current valuation would certainly lend some upside.

Results are 2 weeks away, so adjust your risk accordingly.

PS: There are currently 35 Buy ratings on the Street, so I would expect bevy of reits into the #'s

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