Research in Motion Earnings Preview: Competitive Pressures Overblown

Research in Motion [[RIMM]] is scheduled to report their fiscal fourth quarter 2010 results after the market closes on Wednesday, March 31. Based on analysis from, RIMM is expected to report better than expected quarterly results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $4.35 billion and EPS of $1.30. This would represent a 26% increase in revenues from last year’s $3.46 billion in the same period. The current analyst consensus estimates call for revenues of $4.30 billion and EPS of $1.27. On December 17, the company provided fourth quarter revenue guidance of $4.2 – $4.4 billion and $1.23 – $1.31 EPS.


Earnings Analysis

We expect Research in Motion’s revenue growth to accelerate this quarter as concerns over competitive pressures appear to have been overblown. Recent announcements from Palm [[PALM]] show that few people have been purchasing their phones. Of course, the iPhone from Apple [[AAPL]] continues to remain popular among consumer users, but strong subscriber growth for RIMM should lead to results at the high end of the company’s guidance.    


Research in Motion should see strong subscriber growth continue in fiscal year 2011 as well. New product models, including the Pearl 2 and Tour 2, should help lift demand. If that holds true, Wall Street’s consensus earnings growth estimate of 16% in FY 2011 appears to be too light.


Stock Performance

Since the beginning of the year, Research in Motion stock has gained over 9%, while the Nasdaq has gained less than 6%. In 2009, RIMM shares delivered an impressive 66% return for investors.



Research in Motion is now trading at 14.5x consensus 2011 EPS estimates. This is inline with the relative valuations of their peer group. We expect that RIMM will be able to continue to outperform Wall Street’s expectations in FY 2011, and believe there is still sufficient upside in their stock price. 


Recommendation: Buy with an $82 price target


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