This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Wall Street makes its move
Is Research In Motion (Nasdaq: RIMM  ) ready to move higher? Wall Street seems to think so, and they're cautiously sidling up to stand behind it. Morgan Stanley removed its "underweight" rating on RIM stock Friday. According to the banker, even "modest" success for RIM's new tablet computer, the Playbook, could add a couple of pennies to the company's earnings this year, and as much as $0.40 to $0.60 per share by 2012.

According to StreetInsider.com, this follows bullish comments from fellow analyst Credit Suisse, which argued that RIM is already stealing market share from Nokia (NYSE: NOK  ) in smartphones. Morgan doesn't place too much weight on that assessment, though. Instead, it's expecting only flat net subscriber numbers at RIM this year. But even a scenario of mere stagnant growth, Morgan says, means RIM stock is underpriced.

I agree.

Valuation matters
Amid all the enthusiasm over Apple (Nasdaq: AAPL  ) , and the success of its iEmpire, it seems to me that investors are overlooking the much more attractive valuation at Research In Motion today. Selling for just 11 times trailing earnings, and 12 times free cash flow, the stock offers a compelling bargain if  RIM comes anywhere close to hitting consensus projections of 21% long-term profits growth.

Apple may have a great product, but RIM has a better stock price.

Ghost in the machine
Granted, not all bankers are as enthusiastic about the stock as Morgan Stanley and Credit Suisse.

Late last month, Deutsche Bank (NYSE: DB  ) announced the results of extensive testing it's performed on the iPhone, pairing email encryption from Good Technology's secure email app with Microsoft's (Nasdaq: MSFT  ) Exchange Server.

The result? Deutsche is switching its employees over from RIM's BlackBerry to Apple's iPhone. Within a week, UBS (NYSE: UBS  ) seconded that sentiment, confirming that it has put 1,000 employees on an iPhone-only diet to see whether they prefer the device.

What's this mean for RIM? According to Deutsche: "There is no going back. We expect a lot of users will feel the same way when iPhones are offered at their workplaces." Therein lies the risk for RIM. According to AT&T (NYSE: T  ) , 40% of AT&T's iPhone sales go to businesses (RIM's traditional stomping ground).

Foolish takeaway
This suggests that the switch under way at Deutsche Bank, and potentially at UBS, could mark the beginning of a movement away from Research In Motion -- endangering the 21% growth rate that makes RIM's stock look like such a bargain today.

Still, even in RIM grows only half as fast as projected, the stock still looks cheap to me. And if RIM can grow in the mid-teens? Or even the upper teens? That would be icing on the cake, Fool. The closer RIM comes to hitting its estimates, the sweeter the stock becomes.

Fool contributor Rich Smith owns shares of Southwest. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 725 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Microsoft is a Motley Fool Inside Value recommendation. Apple is a Motley Fool Stock Advisor selection. The Fool has written puts on Apple. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, and Microsoft.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 07, 2011, at 3:43 PM, augustoferreira wrote:

    Dying companies usually have low valuations, look at PALM it also trade at 10x earnings at the end of its life. What happens if earnings grow at 10% instead of 20% for RIMM, stock price will plummet because perception will be that the next earning will be even lower. Unlike Nokia RIMM only has the smartphone market and unfortunately there is not enough space for too many OS systems for smartphones. What clear advantage does RIMM have today, a Keyboard!!!!! Thats not good enough, Droid, IOS and Windows Mobile will kill RIMM. They missed a great opportunity to buy PALM and improve on their OS. As with Palm Rimm did not build on their lead. My bet is that RIMM is dead, there will be two smartphone OS, Droid and IOS maybe Microsoft might me able to save Windows Mobile. It will be the PC industry repeated, people did not buy Macs because there were not software, people will not buy RIMM because there are no Apps.

  • Report this Comment On February 07, 2011, at 6:18 PM, TMFDitty wrote:

    This kind of thinking, Fools, is exactly why RIM is selling for such a steep discount to its actual value.

    Perversely, it's the pessimism and the business risk that creates the opportunity to own the stock at a bargain price.

  • Report this Comment On February 07, 2011, at 7:32 PM, regio wrote:

    sorry my english, my native language is spanish. Let me say that I'm a bberry torch user and I'm extremly happy with it and you all will be surprised the big sales bb will have of the Playbook. As a bussiness man I dont need a lot of app because I dont use my bb torch to play with it and how many millions think like me. The Playbook will reach the internet either via wifi or bluetooth (thethering my bb torch), dual core Texas Instrument processors, micro hdmi and mini usb ports, dual hd cameras, the best operating system the QNX and will run Flash. With this playbook I will put to rest may be forever my laptop computer.

  • Report this Comment On February 07, 2011, at 11:49 PM, regio wrote:

    I just read this: ComScore says that in the last three months to the end of December, the number of people using smartphones in the U.S. went up to 63.2 million people. But while RIM (NSDQ:RIMM - News) is still leading the market, with a 31.6 percent share,

  • Report this Comment On February 09, 2011, at 10:39 PM, Zugersee wrote:

    anyone who actually needs to type on a phone will choose a real keyboard instead of the touch iPhone.

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