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.
