What is Research In Motion (RIMM) Worth?

One of the unquestionable leaders in the smartphone space, Research In Motion Ltd. (Nasdaq: RIMM) has seen its star lose some luster as competition from Apple's (Nasdaq: AAPL) iPhone, Google's (Nasdaq: GOOG) android-based phones, Palm's (Nasdaq: PALM) Pre, and a host of others has swarmed into the space.

Although the smartphone sector is now very crowded, RIM is still the clear frontrunner in the enterprise space and its phones still sell like hotcakes as the total market share of smartphone users grows and grows. While RIM won't completely dominate the smartphone industry, its phone is a money maker for the foreseeable future.

Investors looking to play the growing trend of smartphone use need to ask themselves - Is RIM worth buying right now?

With shares of RIM currently trading at $71 per share, they are at 14x the 2011 EPS consensus of $5.05. Is this a fair value? Below are some valuation methodologies that are being applied by a number of analysts on the street:

• Wedbush thinks RIMM should trade at a multiple of 16.6x an EPS estimate of $5.60, or $90 per share. The firm gets to the 16.6x forward multiple by blending the multiples of peers including Apple (Nasdaq: AAPL), HTC, Motorola (NYSE: MOT) and Palm (Nasdaq: PALM). The firm actually sees non-GAAP EPS of $5.70 excluding amortization for 2011. The firm rates the shares Outperform.
  
• Canaccord Adams thinks RIM should trade at 17x their 2011 EPS estimate of $5.83, arriving at a price target of $100. The stock is now trading at 12x this 2011 estimate. They of course rate the stock a buy on this valuation discount.
  
• Piper Jaffray has a $74 price target on RIM, 15x their FY11 EPS estimate of $4.90. Piper claims that the 15x multiple is in-line with comparable companies. With little upside seen to their price target, the firm has a Neutral rating on RIM.
  
• TD Newcrest has a $110 price target on RIM, saying shares should trade at a 18-20x multiple of their 2011 EPS forecast of $5.84. Currently shares trade at 12x this EPS estimates. They have an 'Action List' buy rating on the shares, based on the discount.

We like the 16.6x multiple that Wedbush is using, it seems to fall in the middle of the analysts views and uses solid data of the average peer multiple. So if you take this 16.6x multiple and apply it to the consensus EPS of $5.05 for 2011 you get a price of $84 per share. Based on this, investors should feel safe buying the stock up to this level.

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