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Following the second quarter fiscal 2013 earnings announcement on September 27, most of the analysts covering Research In Motion Ltd. have provided a mixed earnings estimate. The brokers are bullish on solid growth opportunity in the international markets particularly in the emerging economies.
However, they remain skeptical about the competitive landscape, a stagnant product portfolio and the continuous delay in the launch of its much expected BB10 operating system (OS) based device.
Second Quarter Highlights
On a GAAP basis, quarterly net loss was $235 million or 45 cents per share, compared to a net income of $329 million or 63 cents per share in the year-ago quarter. Adjusted EPS came in at a loss of 27 cents per share, significantly better than the Zacks Consensus Estimate of a loss of 46 cents.
Quarterly total revenue of $2,873 million was down by a whopping 31% year over year, but way ahead of the Zacks Consensus Estimate of $2,478 million. Operating loss was $363 million compared to an operating income of $407 in the year-ago quarter.
Agreement of Analysts
Of the 30 analysts covering the stock in the last 30 days, 20 analysts revised their estimates upward while nine have revised their estimates downward for the third quarter of 2013. For the fourth quarter of 2013, of the 29 analysts covering the stock, 14 revised their estimates upward while 14 have revised their estimates downward.
For fiscal 2013, out of the 32 analysts covering the stock in the last 30 days, 23 analysts raised their estimates upward while six moved in the opposite direction. However, for fiscal 2014, out of the 35 analysts covering the stock, 19 revised their estimates upward while seven have lowered their estimates.
Currently, the Zacks Consensus Estimate for the third quarter of fiscal 2013 is a loss of 36 cents, with a projected annual growth of (128.06%). For the fourth quarter of fiscal 2013, the Zacks Consensus Estimate of a loss of 26 cents indicates an annual loss of (131.90%).
Magnitude of Estimate Revisions
During the last 30 days, the current Zacks Consensus Estimate for the third quarter of fiscal 2013 was six cents below the previous estimate of a loss of 42 cents. While during the last 30 days, the current Zacks Consensus Estimate for the fourth quarter of 2013 was two cents below the previous estimate of a loss of 28 cents.
During the last 30 days, the current Zacks Consensus Estimate for fiscal 2013 was 23 cents below the previous estimate of a loss of $1.45 cents. While during the last 30 days, the current Zacks Consensus Estimate for fiscal 2014 was 13 cents below the previous estimate of a loss of 73 cents.
Research In Motion has fallen short of the Zacks Consensus Estimates in two out of the last four quarters. In the second quarter of 2013, the company’s reported earnings were ahead of the estimate by 2.17% or 1 cent.
The third and fourth quarter of fiscal 2013 reflects 0.00% upside potential. However, fiscal 2013 contains a downside risk of 0.80% (essentially a proxy for future earnings surprises) while the estimate for fiscal 2014 reflect a downside risk of 8.33%.
We believe that Research In Motion will benefit from the surge in demand of smartphones in several emerging markets as the company generates a significant part of its revenue from international markets (outside the U.S. and Canada). The company is also developing an LTE-enabled Blackberry, which will run on the QNX operating system. This will help it attract most users interested in using LTE devices.
Additionally, Research In Motion is benefiting from its ongoing cost cutting initiative as the company plans to reduce its headcount process by approximately 5000 by the end of 2013.
However, the company is in dire straits and is facing several problems due to an ever-increasing competitive landscape, primarily from Apple Inc.’s (AAPL - Analyst Report) iPhone and other smartphones that run on Google Inc.’s (GOOG - Analyst Report) Android platform. We believe that the introduction of a new BlackBerry 10 OS-based smartphone is the last throw of dice from the company. Further delay in its launch could deteriorate the company’s market share going forward.
We are maintaining our long-term Neutral recommendation on Research In Motion. The company also retains a Zacks #3 Rank, implying a short-term Hold rating.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/