RIM: What do broker changes really mean?

by Chris on November 22, 2011

Blackberry logoWatching RIM’s stock price is not something I do on a daily basis. In fact it’s not something I ever did on a daily basis even as a sell side analyst. The day to day crap just isn’t that important to me. And there really hasn’t been anything that important happening to affect my view of the stock. So I’ve been busy doing other major projects and blog posting has been too quiet. Sorry about that!

Anyway, we’ve been seeing a lot of commentary out of Wall Street lately. We’ve seen broker rating or target changes at GMP, JMP, Morgan Stanley and Canaccord Genuity. I’m sure there are a few others I haven’t seen. If anyone wants to send me the reports I’d love to catchup by reading them. Send to chris (at) chrisumiastowski (dot) com.

Institutional investors pay WAY more attention to rating changes than target changes. In fact, target changes are almost completely pointless. They usually indicate that an analyst is trying to play catchup to what’s happening to the ticker tape. I’ve been there myself loads of times. It’s no fun. It makes you feel like your report is a waste of paper. Take the Canaccord Genuity report that cuts the RIM target price from $28 to $21. The stock is trading in the teens. Imagine how many calls that analyst was getting from clients and the sales desk to change the target or change the rating. How do you have a hold on a stock with a $28 target while it trades at $17 ? So when the target gets cut, all it means is that the analyst isn’t ready to change his view on the stock yet. So the target cut is not news. It’s an absence of news.

Ratings changes are another story. They reflect an analyst who is making a call. At least they usually do! There are exceptions, for example when a company blows up on a quarterly results call and the analyst has a buy rating. The next morning everyone sees a downgrade. That’s not a call. That’s a reaction to the blow up. I’ve been there too. It sucks, but it’s better than having your head in the sand and sticking with a buy when the story has completely changed on you.

So what’s going on with RIM? It’s trading under $18, which still means investors don’t see any kind of future at all. The Street thinks RIM is worth more being sold to someone else (for a one time pop in the stock) or broken up (patents, etc) vs. being run by Jim and Mike. That’s unfortunate.

But is it correct? I’m not convinced. I’d really like to see what people say about their $199 Playbooks. For that price I think they will sell fast. I don’t think RIM will need to write down any inventory, although it’s entirely possible that they could have supplier commitments that result in cash charges if demand doesn’t pick up. GMP pointed that out in their upgrade note today and it makes sense.

I’d also like to see what the Playbook software update really looks like in February. And I’d like to see what the new QNX phones look like.

Developers seem to be reacting well to the native developer tools that RIM has released. And HTML5 is a huge trend in the industry that helps level the “app gap” problem for everyone except Apple (hey – they’re the leader, so they’re really the only ones who get “hurt” by HTML5 if you can call it that).

I’m crazy patient … or just crazy.

Tonight I’m off to have a few pints with a buy side friend of mine who’s been terribly bearish on RIM. Should be fun.

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