RIM Looks Ready to Pop

12/04/2007 12:00 am EST


Tobin Smith

Founder and Chief Research Analyst, Transformity Research LLC

Tobin Smith, chairman of ChangeWave Research, says Research In Motion is ready for a new international growth wave, and its price has come down from recent peaks.

We've been following the smart phone trend here at ChangeWave via our proprietary Alliance research group and our results have been indisputable. The king of smart phones for business now and for the foreseeable future is Research In Motion (NASDAQ: RIMM). This category is growing rapidly with an estimated nine million smart phone users in the United States alone and In-Stat estimates that sales will grow at a 30% annual rate for the next five years.

RIM's BlackBerry device is almost as essential in many office environments as a personal computer. The device and its signature delivery process are so addictive that Research In Motion's smart phone is often called the "CrackBerry."

Our Corporate IT Spending survey conducted [last] month found that among the 36% of respondents whose companies provide them with smart phones, the RIM BlackBerry (73%) continues to control the lion's share of the market. In contrast, second-place Palm (NASDAQ: PALM) has fallen to another new low.

Our survey shows that RIM will have an overwhelming share of future purchases and continues to overshadow all of its competitors by a huge margin.

After talking with CEO Mike Lazaridis last week, I believe that there are a number of key value drivers at play here.

Lazaridis says that despite recent strong results, RIM is very early in its product cycle. [He says that] distribution channels in Europe, Latin America, and Eastern Europe still have significant room to ramp. He feels Europe holds the same potential subscriber base as North America, but adoption is lagging by two to three years, suggesting forecasts from Wall Street are too conservative.

The market for RIM in Latin America is roughly 1% [of] the company's total subscriber base now, but it has the potential to grow to 5%-10% during the next five years. More carriers are starting to push BlackBerrys in the region and the enterprise opportunity is huge with about 90 million mobile workers in Latin America.

I believe the really big wave of demand has yet to hit from China and India. Just weeks ago RIM began to enter those markets, and the company will double sales during the next few years.

The Chindia push for the BlackBerry is just beginning, but the biggest drivers of the growth waves we are riding with RIM are Europe, Latin America, and Eastern Europe-and they are lagging North American growth by years.

Add it all together and this brings earnings power in the 2010 fiscal year to the $5.00 a share range. With a 35% earnings growth rate that's sustainable for the next four to five years, we get a $190-$200 valuation for RIM.

I've been greedy on this play while waiting for a pullback under the 50-day moving average. Well, we have one here. 

Buy RIM stock up to $120 with a target of $200. The Strong Buy Under price is $110.  (It closed Monday above $105-Editor.)

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