Even bullish analyst notes on Research In Motion Ltd. these days contain flashing warning signs. Take Steven Li at Raymond James, for example. He maintained an "outperform" recommendation on the stock and his new target price of $60 (U.S.) implies a gain of more than 50 per cent from Monday's price.
So is Mr. Li recommending RIM as a table-pounding don't-miss-this-opportunity buy? Uh, not exactly. That new target price of his is down from $71 previously, meaning that he trimmed it by about 15 per cent. He also calls the company's first quarter earnings report and second quarter guidance, due to be released on June 16, "more water torture."
What's more, he believes that RIM's new product launches could miss the important back-to-school season. And, he draws a comparison to Nokia Corp. , a rival smartphone maker that was hit hard last week after it issued a profit warning.
"In our view, RIM is going through a platform transition that has its risks - you only need to look at what happened to Nokia last week," Mr. Li said in his note.
Which raises the question of what Mr. Li sees in RIM. For the most part, he believes that the negative news and uncertainty has already been captured in the share price, meaning that it is priced to imperfection.
"To illustrate how negative sentiment is, we estimate RIM's current share price implies RIM's recurring services revenue declines 15 per cent p.a. starting now into perpetuity (it grew 48 per cent last year). We think RIM has a platform (QNX) to take it to the next level, an enterprise strategy (that includes managing iOS and Android devices), and its smartphones have started to move up the hardware specs curve (with 1.2 GHz processors)."
Still, he expects a few bumps: "Near-term, until they execute and get the new products out, we believe risk remains to the downside with an aging portfolio (and, in our opinion, no chance for an upside preannouncement)."
David Berman