Cormark’s Tse issues BUY rating on RIM, raises target to $12

Yesterday, the street found itself in unfamiliar territory when Research in Motion’s Q2, 2013 numbers weren’t nearly as bad as expected.

The degree of surprise was evident in the after-market, when RIM shares leapt as much as 23%. The filing showed RIM lost $235 million, or $0.45 cents per share on revenue of $2.9 billion, which was up 2% from the company’s $2.8 billion topline in Q1. The numbers bested the street’s consensus that RIM would lose $.54 cents a share on revenue of $2.5-billion.

Cormark analyst Richard Tse says the numbers were better than he expected. He says the Waterloo company is by no means out of the woods yet, but RIM should be commended for growing its subscriber base with an aging product portfolio. More importantly, he says, the report is evidence that management is is executing operationally on changes it has laid out.

The Cormark analyst says he is impressed with the degree to which Thorsten Heins and company are holding things together in the challenging time before the release of the company’s much anticipated BlackBerry 10 operating system. He says a now demonstrated ability to preserve its capital is increasing his confidence that breakup value of RIM is much higher than its current price. In a research update to clients this morning, Tse upgrading Research in Motion to BUY from MARKET PERFORM and raised his target price to (US) $12 from his previous target of $10.

Tse says his remarks should be read in context: RIM’s Q2 was by no means stellar, and Q3 looks to be even tougher, he says. But the quarter was enough to shift the risk-to-reward equation firmly in favour of reward. Tse explains that RIM’s ability to take down its costs base by $350-million of its targeted $1-billion in annual savings has effectively removed the biggest a wildcard in his breakup value analysis, which was the sustainability of RIM’s cash position.

Shares of Research in Motion on the TSX closed today up 8% to $7.52.