Byron Capital says BlackBerry weakness is a buying opportunity

Byron Capital’s Tom Astle attended the much anticipated BlackBery 10 debut in New York Wednesday. What he saw, he says, was a “well-executed, well-attended” launch. He says investors should use an overreaction about the US availability of the devices as a buying opportunity, though he has become slightly more cautious on the market uptake rate.

“Buy on rumour, sell on news”. It looks like the old trader adage played out as expected this week for Research in Motion, which we’ll hopefully remember to call “BlackBerry” by Monday, when the company will have new ticker symbols.

Byron Capital’s Tom Astle attended the much anticipated BlackBerry 10 debut in New York Wednesday. What he saw, he says, was a “well-executed, well-attended” launch. He says investors should use an overreaction about the US availability of the devices as a buying opportunity, though he has become slightly more cautious on the market uptake rate.

Because of delays in carrier testing, the BlackBerry Z-10 (virtual keyboard model) won’t be available in the U.S. until mid-March. Due to this, Astle has dropped his sales estimate for February from 2.5-million units to just a million. He believes BlackBerry will make this up throughout 2013, so the Byron analyst says there will be no impact to his full year estimates.

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Astle says BlackBerry is very sensitive to the margins it can command. While the days of 30% plus margins may be gone, he is modeling 15% margins that will climb to 20% by fiscal 2015. His base case model gives him $1.60 in EPS in fiscal 2015. In a research update to clients yesterday, Astle reiterated his BUY rating on BlackBerry and maintained his $18.00 target, which is about 11x his base-case EPS.

Astle says EPS sensitivity works both ways. If, for instance, he were to adjust his estimate on the number of units BlackBerry will ship in fiscal 2015 from from 31 million to 40 million, an EPS of $2.80 would be the result. 9x that number would change his target to $25.00, he says. Another path to a higher target would result from the margin rising to 25%, producing an EPS of $2.60. On the other hand, if services revenue falls by 50% instead of the 30% Astle is modeling, he says EPS would be just $0.60.

Shares of Research in Motion on the Nasdaq closed today up .3% to $13.02.

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