Despite RIM’s rough quarter, Macquarie ‘pounding the table’ on rebound

In spite of Research In Motion’s recent fiscal second-quarter earnings report, which missed Wall Street’s consensus and RIM’s own estimates, not everyone is jumping ship just yet. Investment bank Macquarie Capital Markets reiterated its Outperform rating on RIM stock this past Friday, and it maintained its 12-month price target of $42. The firm noted that RIM’s low shipment volume (10.6 million units) ahead of the BlackBerry 7 product refresh is less disconcerting than most believe in light of the 13.7 million devices that were sold to customers. Macquarie also sees improved ASPs and sell-through leading to a rebound in the second half. Read on for more.

Sales of RIM’s new BlackBerry 7 devices only began toward the end of the second quarter, and Macquarie notes that channel sales of RIM’s new smartphones appear strong. “[RIM management] commented that new BB7 products shipments have been very strong, with 35% of NA shipments coming from new products at qtr end and NA churn has begun to fall. We note that NA revenue stabilized at 27% of total sales,” the firm stated in its research note.

While Macquarie did trim its full-year fiscal 2012 estimates 2% in light of RIM’s weak second quarter, the firm also said that it expects “sharp growth” in the second half of the year. The average selling prices of BlackBerry devices will increase in the third and fourth quarters, the firm says, as shelves are cleared of older low-margin devices if favor of newer models. “We believe gross margins should begin to recover in FQ4 as Playbook inventory is reduced. BB7 product gross margins are higher than legacy products and Playbook.” The firm upped its fiscal 2013 projections by 8%.

Macquarie says RIM’s stock is currently under-owned, as investors wanted to get the “risky Q2 transition quarter” out of the way. “The opportunity is that the shares are back below where they were pre GOOG/MMI, its patents are worth more now, MSFT has fallen further behind AAPL and GOOG, and RIM estimates haven’t changed that much,” Macquarie analysts wrote. “We point out that semi companies have been rallying on bad news recently as investors now view the tech inventory adjustment as substantially complete.”

“We believe that strong new product sales, lean channel inventories and normal seasonality underpin our Q3 estimate for sharp seq. rev. and EPS growth,” the firm continued. “We are now pounding the table on RIMM at $24 (after hours trading price Thursday night) and reiterate our Outperform rating and $42 target. RIMM shares now offer an extremely attractive risk/reward profile, in our view.”

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