Research in Motion sold off by more than 20% after the latest earnings release but the fundamentals remain strong.
Revenue for the second quarter was $3.53 billion, up 3% from $3.42 billion in the previous quarter and up 37% from $2.58 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 81% for devices, 14% for service, 2% for software and 3% for other revenue.
During the quarter, RIM shipped approximately 8.3 million devices. Approximately 3.8 million net new BlackBerry® subscriber accounts were added in the quarter. At the end of the quarter, the total BlackBerry subscriber account base was approximately 32 million.
The long-term performance of RIMM is stronger than it’s competitors. If you look at the year-over-year revenue growth for RIMM, NOK, PALM you see that RIMM is growing much faster.
RIMM provided solid guidance for the third quarter with revenue expected to be in the $3.60 to $3.85 billion range. They expect gross margins to remain steady at 43% and are predicting 4M to 4.3M net new subscribers for the quarter bringing the total to 36 million subscribers. Earnings per share is expected to be in the $1.00 to $1.08 per share diluted range.
RIMM is currently trading at ~ 18 times earnings with a year-over-year revenue growth rate of 37%. This puts the PEG ratio below .50. The general rule for the PEG ratio that any time a stock is trading below 1 it may be attractive.
If you run a standard Discounted Cash Flow on RIMM you will see that the stock looks very attractive in the low $60’s. We would be adding RIMM in the low $60’s
The analysts that cover RIMM have the median price target at $93 with the highest target at $150. We see fair value in the $90 to $100 range.
Disclosure: No Position in RIMM.
$69.34 (10/14/09)
