Research in Motion better known as the maker of the BlackBerry is the subject of our Stock Brawl today on Closing Bellat 340PM ET.
Daniel Ernst, Principal with Hudson Square Research rates RIM a screaming “buy”. Jim Suva, Director of Investment Research at Citi has a “sell” on the stock, cutting RIM’s price target on June 25th to $50 from $55.
Making their case - The Good:
Daniel Ernst, Principal with Hudson Square Research
"RIM holds a meaningful edge in the enterprise market with deep hooks into corporate IT systems beyond email."
New Ramped–Up OS & Product Introductions: RIM had its analyst day back at the April. The company showed a short promo video of and related news that a revamped BlackBerry operating system, due to roll out in the third quarter of this year. Ernst says this will “alleviate some competitive concerns relative to the iPhone and Android.” But this will be in the hand of third-party developers cranking out the code for the software.
Ernst also noted “management sounded very upbeat on the prospects for unannounced new product introductions in the second half of 2011.”
Dominating The Corporate World: Don’t forget most corporations rely on RIM for their employees. Ernst points out “RIM holds a meaningful edge in the enterprise market with deep hooks into corporate IT systems beyond email.”
Spreading RIM Globally: Not only does the smartphone market represent just 15% of the roughly 1.1B handsets sold annually, but smartphone subscribers represent an even smaller fraction of the global 4.4B total mobile subscribers. Further, management noted that 74% of subscribers are pre-pay customers – a market that RIM has only recently begun to address.
Making Their Case - The Bad:
Jim Suva, Director of Investment Research at Citi
Price Target Cut: Suva slashed his price target of RIM last month (6/25/10) to $50 from $55. Suva expects EPS to decline in the future because of falling gross margins and higher operational expenditures.
Increased Spending: Suva believes that “RIM shares will experience pressure from the need for RIM to increase its marketing and promotion spending as carriers are shifting their marketing and promotion to some other handset makers.” Suva said “consensus expectations are too high and the launch of the Android platform coupled with continued share gains of the iPhone both with strong application stores and enhanced user experiences (web browser, etc) will pressure RIM’s consumer growth which has been very robust recently.”
"RIM is a high risk due to shift in focus to the highly competitive and inherently lower margin consumer segment."
Shift Towards iPhone or Android: Some enterprises are turning to devices like iPhone or Android. Suva expects to see continued pressure in this area of the market.
Earnings & Profits Slow: Suva says RIM will continue to be profitable and make money but, “earnings growth and profit leverage to meaningfully slow.” New products are also likely to come out later than expected, Suva points out. That may also hurt the stock too.
RIM Stock = High Risk: Suva rates RIM 'High Risk' because of its "shift in focus to the highly competitive and inherently lower margin consumer segment."
I can’t help but mention this… When I got my first BlackBerry over six years ago, my mother said, “Is that your new blackcherry?” I couldn’t stop laughing. Now, my mom is talking to me about wanting a “bluebooth” headset for her phone. Wow, times have really changed.
_____________________________
_____________________________
Questions? Comments? Write toinvestoragenda@cnbc.com