Earnings Sneak Peek: Research In Motion (RIMM) Primed For A Comeback?

September 12, 2010

Earnings Estimates (High/Mean/Low): $1.41 / $1.355 / $1.23

Revenue Estimate: Up 27% YoY to $4.49 billion

Oh how the mighty have fallen. Just over two years ago, Research In Motion (NASDAQ: RIMM) was the toast of the town as it hit all-time highs of $148.13. Now, after trading between $60-$80 for the better part of the past year, shares have sank to the low-$40′s, and many on the Street continue to wonder if shares of the BlackBerry-maker remain over-priced. Add in a surprising surge in sales of Android-based phones and the always-hot iPhone, and RIMM is under serious pressure to report a good Q this Thursday after the close.

RIMM’s most recent attempt at re-applying the luster it once bore so proudly was last month’s release of the BlackBerry Torch, a sleek smartphone with a slide-out keypad. However, despite a valiant hype-generation effort, the Torch has failed to meet expectations by most, if not all, standards. Current sales estimates for the Torch stand at approx. 300,000 – 400,000 for the current Q, quite underwhelming compared to the gaudy numbers put up by new releases out of competitors like Apple (NASDAQ: AAPL).

RIMM has been downgraded by at least 5 analysts since it reported its last Q, but more than half of the analysts covering shares continue to maintain a Buy rating. The median target on shares is still $72. RIMM has beaten estimates in eight of the past eleven quarters and five the past six. Mean EPS estimates of $1.355 represent 32% gains YoY and a loss of 2% sequentially.

Similar to Best Buy (NYSE: BBY), which we reported on earlier today at the Cheat Sheet, the Street is struggling to decide whether RIMM is now an attractive value investment or a value trap. Many see RIMM as well on its way to becoming the next Nokia (NYSE: NOK), while others think that even if they never regain their former glory, RIMM will be able to avoid becoming a manufacturer of a commoditized product to the degree that Nokia has become.

If you’re looking for a play off earnings, try to pick up an ATM straddle for about $3.75 or less. You’ll need approx. an 8% move in either direction after the release to profit, and given the stark contrast in sentiment by those for and against RIMM, a move of that scope is far from out of the question, if not quite likely.