Research In Motion: Bernstein Boosts Rating After 39% Slide

 

 

Research In Motion shares are getting a lift Wednesday morning from Bernstein Research analyst Pierre Feragu, who raised his rating on the shares to Market Perform from Underperform.

The analyst notes that the stock is down 39% since its February high, “and is now clearly implying a medium term evolution of the company far worse than management guidance or even sell-side consensus implies.” He points out that RIMM now trades for under 4.7x the company’s guidance for the FY 2012 fiscal year and 5.5x the sell-side consensus ex-net cash.

Ferragu notes that he is modeling EPS 10% below the consensus for this year and 21% below the Street for next year, a view he thinks represents “the bleakest possible outlook for the company,” and contends that the probability of a much worse scenario is highly unlikely over the next two years. His advice: cover short positions in RIMM.

Ferragu adds that the stock “is
particularly cheap on any metric, were the company to stabilize its current position and make the right strategic moves to stay in the smartphone race.” But he adds that “management remains in denial of challenges facing the company and therefore do not recommend buying the stock yet, or at least not beyond a short term play on a likely rebound.”

can you see slide in here: http://blogs.forbes.com/ericsavitz/2011/05/18/research-in-motion-bernstein-boosts-rating-after-39-slide/

Despite the upgrade, overall his view of the company is that it remains deeply challenged:

• BlackBerry, he says, “is a broken brand,” with surveys showing “a majority of BlackBerry owners do not consider BlackBerry their preferred choice for their next smartphone,” and data suggests sales in the high-end of the smartphone market have been shrinking for the last 12 months.

• The  company’s corporate business is under attack. He notes that a a survey last summer showed many customers now considering alternatives to the BlackBerry. “We see potentially here a strong dynamic with employees pushing for a change and corporate going ahead as they realize the potential cost cutting,” he writes.
• The company’s “premium profitability is at risk,” noting that the company has been a premium brand for 10 years, but that mobile e-mail has become a commodity. “We also argue that the iPhone established a new innovation cycle in which RIM became a lagging follower, running behind in terms of application store and browsing capabilities. As a consequence, we believe RIM’s high level of profitability is at risk. Moreover, in the current business model, almost half of profits come from monthly fees charged for email and connectivity, which we see under progressive pressure as Blackberry expands into the lower consumer segment, and is under pressure in the corporate segment.”

• Growth in low-price segments and international markets has offset weakness in the corporate sector, but he thinks this trend will stall driving results well below consensus expectations. “We expect consumers’ awareness of the superiority of Apple and Android phones to grow very fast in the rest of the world and these very same competitors to expand quickly in lower price points. In such a context we would expect RIM’s trajectory in international markets to get closer to the one observed so far in North America.”

RIMM this morning is up 93 cents, or 2.1%, to $44.71.

Forbes.com