Stock of the Week
Research in Motion
Nasdaq Symbol: RIMM
Industry: Smart phones
Price as of Sept 24th: $48.87
September is turning out to be a great month with the Dow up over 8%. The Nasdaq is up an impressive 11% for the month thanks in part to a 20% rally in Apple. We featured Apple at the end of January when it was trading at $192 a share. Not bad. But other than Apple a number of techs have struggled including one of their rivals, this weeks' featured stock, Research in Motion. Research in Motion finally reported some good news last week with better than expected earnings and guidance for the rest of the year. However, investors are still treating the stock as if their business is dwindling. It is true Apple's Iphone and Google's Android phones are growing faster than the Research in Motion's Blackberry, but there is still plenty of growth for everyone. It seems like everyone has a smart phone, but they only account for 15% of the total market share. Smart phone market share is expected to double in the next three years which is good for everyone. Research in Motion is not a conservative stock due to the increased competition although its' priced at a very cheap valuation. Looking forward, Research in Motion has a number of things going for them. They are working on a tablet to compete with the Apple Ipad which could get introduced as soon as next week. If they embrace the Google Android software as some have rumored, Research in Motion could quickly turn into a fan favorite once again.
Last week, Research in Motion reported a profit of $796.7 million, or $1.46 a share beating estimates by 9 cents. Revenue came in at $4.62 billion ahead of consensus estimates. Research in Motion said it repurchased about $1.5 billion worth of stock in the quarter adding 2 cents to its earnings per share. Research in Motion's gross margins came in at 44.5%, versus expectations of 43.9%, although the company said it expects its third quarter margins to slip to around 42%. The bears on Research in Motion focused on the fewer than expected subscribers during the quarter. Research in Motion blamed the weaker numbers on tough competition particularly in the United States. Looking forward, Research in Motion said it expects to add between 5 million and 5.4 million subscribers in the current quarter in the range of analyst expectations of 5.2 million net new subscribers. For the next quarter, Research in Motion is forecasting earnings per share between $1.62 to $1.70 a share on revenue in a $5.3 billion to $5.55 billion range. Both numbers are above Wall Street consensus estimates of $1.39 in earnings and $4.8 billion in revenue.
As mentioned earlier, Research in Motion remains a cheap stock and highly profitable. Currently the stock trades for 8 times this years' earnings and 7 times next years' estimates. The stock also trades for 1.4 time's sales. The company has zero debt and over a billion in cash, generating over a billion dollars in cash every quarter. Research in Motion has been using some of their cash to buy back stock and invest in R&D and new products. Hopefully the release of their new tablet as soon as next week will impress consumers and boost the stock. But even without the new tablet Research in Motion remains a compelling investment in the fast growing smart phone industry.