BlackBerry maker Research In Motion (NASDAQ:BBRY) has become something of a polarizing stock lately. Not too long ago, the broad consensus was that the company was utterly doomed. But now Street analysts are rather mixed on the company's prospects, just two months before it launches its next-generation BlackBerry 10 operating system that's tasked with saving the entire company.
Earlier this month Jefferies analyst Peter Misek figured that if BB10 performs well, RIM could hit $43. Then National Bank analyst Kris Thompson noted the "positive sentiment building in the industry" was a good sign. Raymond James is somewhat neutral, but thinks the company needs to hit 18 million BB10 units in fiscal 2014 to breakeven.
CIBC World Markets analyst Todd Coupland upgraded RIM by two notches, from underperform to outperform and nearly doubled his price target from $8 to $17, saying shares appear "materially undervalued." Morgan Stanley and Macquarie Research don't think it'll happen, though, with the former saying RIM is "uninvestable" right now.
Goldman goes bullish
The most recent bull is none other than Goldman Sachs, which has boosted its rating on RIM from neutral to buy today while bumping its price target from $9 to $16. This upgrade is hinged upon three driving factors. BB10 should boost average selling prices. That boost will subsequently improve margins. Additionally, There may also be some upside as RIM fills its channel inventory with BB10 devices.
Analyst Simona Jankowski pegs BB10's chances of success around 30% after taking into account positive sentiment and carrier support, since carriers are very interested in diversifying their device portfolios beyond just Apple (NASDAQ: AAPL) iOS and Google (NASDAQ: GOOG) Android. The increased price target implies a $3 billion value for the operating business, a substantial improvement from the $0 valuation that Goldman had assigned it previously.
Jankowski also believes RIM will best consensus estimates over the next year and will return to profitability as early as the February, when the company kicks off its fiscal 2014. The bull case scenario of BB10 succeeding in the long term could even boost shares all the way up to $31 in Goldman's view, if it can hold down a 5% market share.
Is Goldman right?
The new devices will inevitably help turn the tide when it comes to falling average selling prices. During the first half of its fiscal 2013, RIM's product mix has significantly shifted toward older, lower-end devices that fetch lower ASPs. RIM has also been relying heavily on promotions on the aging BlackBerry 7 devices to drive sell-through and sell-in and clear out inventory ahead of BlackBerry 10's launch.
A near-term bump for the top line due to filling channel inventory is expected, especially as RIM relies heavily on carrier retail distribution instead of direct sales. For example, buyers that visit BlackBerry.com looking to buy a smartphone are redirected to respective carrier sites to complete purchases.
However, investors shouldn't rely entirely on sell-in, which is how most companies report. RIM needs strong sell-through to end users in the long term, because inventory sitting in the channel does no good and will eventually be written down. If RIM gets a bump over the next couple quarters as it fills its channel inventory but BB10 doesn't resonate well with consumers, the top-line gains will be temporary.
We're No. 3!
BB10 certainly has a chance at catalyzing a turnaround. Carriers are interested in breaking the duopoly that is iOS and Android, but Microsoft (NASDAQ:MSFT) is also gunning for No. 3 very aggressively with Windows Phone.
I would expect Microsoft to see some market share gains at RIM's expense in the fourth quarter. The software giant just launched Windows Phone 8 devices made by Nokia (NYSE:NOK), HTC, and Samsung, while rekindling its relationship with Verizon (NYSE:VZ) after Big Red took a break from Windows Phone. Nokia's Lumia 822 just launched on Big Red's network, the first Windows Phone device that Verizon has launched in a year and a half.
RIM's market share in the U.S. has now fallen to just 1.6%, and there's no reason for that figure to improve until next year when BB10 launches.
Fool contributor Evan Niu, CFA owns shares of Apple and Verizon Communications. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Goldman Sachs, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.