's Rating Du Jour 11/29: Goldman Sachs Goes RIM-Wild (RIMM)

November 29, 2012 9:16 AM EST
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Price: $14.64 +12.36%

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Join SI Premium – FREE's Rating Du Jour for November 29, 2012 is Goldman Sachs' call on RIM (NASDAQ: RIMM).

Goldman Sachs upgraded the embattled smartphone maker to Buy from Neutral, saying they see positive risk/reward heading into its BlackBerry 10 (BB10) launch on January 30.

"For the first time in 3 years, we think out-year Street estimates are too low, as they don’t capture: (1) the ASP lift from BB10; (2) the associated margin improvement; and (3) the channel inventory fill for BB10," Goldman analyst Simona Jankowski said.

Jankowski is giving BB10 a 30% change of success based on positive early reviews, broad-based carrier support, attractive features, and interest by carriers and consumers in broadening the field beyond Android/iOS.

Goldman Sachs lifted their price target from $9 to $16, implying 44% potential upside. They said even with the recent run, upside exits. "Put another way, our new price target implies a $3bn value for the operating business, up from $0 previously."

Commenting on catalysts, the firm said they expected the company exceed Street estimates over the next 4 quarters, with our revenue estimates 8% and our quarterly EPS $0.14 above consensus on average. "In fact, we now estimate that RIM will turn profitable in FY14 (Feb) vs. the consensus view of continued losses," the analyst stated.

Goldman also discussed a bull case scenario (30% probability), which suggests even upside to $31 per share. "In this scenario, we assume that RIM succeeds with the BB10 launch longer-term, establishing a profitable niche with around 5% smartphone share in the high end consumer/pro-sumer, enterprise, and BYOD segment where security and productivity are valued. Based on a P/E of 10X applied to our bull-case, CY14 EPS of $3.08 we calculate a $31 implied value in this scenario."

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