RIMM: Miserable Guidance Triggers Multiple Downgrades
MKM Partners analyst Tero Kuittinen cut his rating on the stock to Neutral from Buy, with a new target of $32, down from $62. “We see the next few quarters as a potentially tough period for RIMM characterized by further product delays,” he writes. Caris & Co. analyst Robert Cihra cut his rating on the stock to Average from Above Average, with a new target of $40, down from $70. Scotia Capital analyst Gus Papageorgiou cut his rating to Sector Perform from Outperform. “Strength in international markets, strong if not reduced profitability, a slew of new products, and the strong launch of the PlayBook indicate RIM maintains some strengths. Citigroup analyst Jim Suva cut his rating on the stock to Sell from Hold, with a new target of $25, down from $45. I would note that a host of other analysts chopped target prices for the stock; and everyone reduced estimates following the disappointing guidance.
RIMM this morning is down $6.52, or 18.5%, to $28.81.
Update: Standard & Poor’s analyst James Moorman cut his rating on the stock to Hold from Buy, with a new target of $29, down from $65.
RIMM stocks drop after BlackBerry revenue slump and job cuts announcement
Research in Motion, maker of the BlackBerry smartphone, forecast second-quarter revenue and profit that missed analysts’ estimates and said it will cut jobs as a lack of new models prompts consumers to buy rival devices.
The stock fell as much as 16 percent in late trading after RIM said profit this quarter would be 75 cents to $1.05 a share. “The existing portfolio of BlackBerry products has been in market for close to a year, and delivering new products has proven more challenging than anticipated,” RIM Co-CEO Jim Balsillie said on a conference call with analysts.
RIM has an unusual leadership structure, where two executives, Balsillie and Lazaridis, serve as both co-CEOs and co-chairmen. Dissident shareholders are calling for RIM to separate the roles of CEO and chairman.
Other industry analysts criticized the dual-CEO struture which Research In Motion employs. RIM has come under increasing scrutiny from investors after its stock slumped, the company lost phone market share, and its new PlayBook tablet computer, a rival to Apple’s iPad, was criticized by technology columnists. Last week, investor Northwest & Ethical Investments LP called for RIM to separate the roles of chairman and chief executive officer as analysts question whether RIM’s co-CEO structure is the best way to manage the company.
“With dual CEOs, you have a challenge,” said Brian Modoff, an analyst at Deutsche Bank Securities in San Francisco, who rates RIM a “sell.”
RIMM Breakdown: Diary of a Decline
Remember last year about this time when Research In Motion (RIMM - Analyst Report) once again disappointed the Street and the stock took a big fall? That "one way" is to use the best available research on future financial projections -- from sales and earnings growth to new product development and new market penetration. And that best available data comes from the equity analysts who follow the given company.
A Trend of Diminishing Expectations
The financial projections and resulting earnings estimates from analysts are by no means foolproof. Anecdotal research has its place, ala Peter Lynch investing wisdom. But analyst earnings estimates can give us a no-nonsense, quantitative benchmark to temper our feelings.
The trend of RIMM earnings estimates for the past two years has been pretty much sideways, with occasional dips and a surge of growth expectations late last year. You can see full-year earnings estimates for 2011 (blue line) were approaching $7 per share, but then took a quick dive after their quarterly report in March. 2012 consensus estimates of over $7 (red line) also took a big hit at the same time. RIMM subsequently notched two 50-million share sell-off days where shares gapped lower, once in late March and again in late April on a slide into the $40's. Love the Story, Vet it With Hard Data
A story I have loved for two years is that of Apple (AAPL - Analyst Report). You can imagine what that will do to Apple earnings. But sticking with today's theme of qualifying the stock stories we love with quantifying evidence, I will keep my eye on the trends in analyst earnings estimates. Right now, 2012 estimates are trending nicely "up and to the right" toward EPS of $30.
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