Earnings Preview: Research In Motion

Research In Motion Ltd. (RIMM) is slated to release its fourth quarter 2011 results on Thursday, March 24, after the closing bell. The current Zacks Consensus Estimate for the fourth quarter is pegged at $1.75, representing an annualized growth of 37.66%.

With respect to earnings surprise, over the trailing four quarters, Research In Motion Ltd. has outperformed the Zacks Consensus Estimate for all the three quarters except one quarter, where the Zacks Consensus Estimate was above the actual earnings by a penny. The average earnings surprise was a positive 4.12%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third-Quarter Performance

On December 16, 2010, Research In Motion Ltd. reported its third quarter 2011 results. Quarterly net income was $911.1 million or $1.74 per share compared with a net income of $628.4 million or $1.10 per share in the year-ago quarter. Quarterly EPS of $1.74 was well above the Zacks Consensus Estimate of $1.64.

Third quarter 2011 total revenue was $5,495 million, up 40% year over year. This also exceeded the Zacks Consensus Estimate of $4,383 million. The growth in revenue was mainly due to higher Blackberry demand among non-business class people.

Agreement of Estimate Revisions

In the last 30 days, out of the 41 analysts covering the stock, 4 analysts increased their EPS estimates for the fourth quarter 2011 while none moved downward. Similarly, for first quarter of fiscal 2012, out of the 37 analysts covering the stock, 3 analysts increased its EPS estimate upward but 2 decreased it downward.

For fiscal 2011, in the last 30 days, out of the 44 analysts covering the stock, 4 analysts increased its EPS estimates while none decreased it. Similarly, for fiscal 2012, out of the 45 analysts covering the stock, 5 analysts increased their EPS estimates while none reduced their EPS estimates.

Magnitude of Estimate Revisions

During the last 30 days, the Zacks Consensus Estimate was in line with the current estimates of $1.75 and $1.65 for the fourth quarter 2011 and first quarter 2012, respectively. For fiscal 2011, the Zacks Consensus Estimate inched up 1 cent, from $6.29 to $6.30. While for fiscal 2012, the Zacks Consensus Estimate inched up 4 cents, from $6.76 to $6.80.

Earning Surprises

In the previous quarter, Research In Motion Ltd. reported EPS of $1.74, which was 10 cents above the Zacks Consensus Estimate. The current Zacks Consensus Estimates for the ongoing quarter contains 1.14% upside potential while for the upcoming quarter, it is reflecting a 1.82% upside potential (essentially a proxy for future earning surprises). Similarly for fiscal 2011, the Zacks Consensus Estimates upside potential is 2.99% and for fiscal 2012, the downside potential is 0.78%.

Our Recommendation

Booming foreign markets and strong fundamentals, coupled with Research In Motion’s new PlayBook and QNX-based smartphone line up will act as positive catalysts for growth. Despite these positive factors, we expect stiff competition from Google Inc.’s (GOOG) Android-based smartphones and Apple Inc.’s (AAPL) iPhones, which will result in loss of market share. Moreover, launch of iPhones from Verizon Wireless (VZ) along with launch of Blackberry look-alike handsets and smartphones at cheap rates will pose serious threats to RIMM’s market share.

We, thus, maintain our long-term Neutral recommendation for Research In Motion Ltd. Currently, Research In Motion Ltd has a Zacks#3 Rank, implying a short-term Hold rating on the stock.

RESEARCH IN MOT (RIMM): Free Stock Analysis Report

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