Genuity increases RIM estimates in advance of quarter

It’s not all about hockey in Waterloo, as this Research In Motion (RIM:TSX, RIMM:Q) quarterly preview note from the research team at Genuity Capital Markets will attest:

Near-term momentum is strong; Increasing estimates – We are increasing our estimates for RIM’s May and August quarters. For the May quarter (reports on June 18), we are increasing our revenue and EPS estimate to $3.46 billion and $0.96 from $3.42 billion and $0.94, respectively, as we believe that RIM’s subscriber additions did not slow from the seasonally strong Christmas quarter ended February. Consensus is currently looking for revenue of $3.41 billion and EPS of $0.93.

New H/W to drive August quarter – For RIM’s Q2/F10, we believe that the device shipment expectation of 8.0-8.5 million is too conservative and that RIM could provide hardware shipment guidance of 8.5-9.0 million units as subscriber additions are not slowing and the company is preparing to launch a number of new devices. As a result, for RIM’s Q2/F10, we are now forecasting revenue and EPS of $3.77 billion and $1.06 on subscriber additions of 4.0 million and hardware shipments of 8.9 million. Consensus is currently expecting $3.56 billion and $0.95.

Adjusting fiscal year estimates – With our higher estimates for Q1 and Q2, we have adjusted our numbers for F2010 and F2011. We are forecasting EPS of $4.37 in F2010 and $5.55 for F2011.

Margin outlook: Cost reduction versus more competitive environment – After guiding to margins of 43-44% for its Q1/F10, margin guidance will take center stage once again. While we are modeling margins to down tick slightly to 42.5% in the coming quarters, as competition and the pricing environment becomes more intense (i.e., $99 3G iPhone), we continue to believe that RIM’s margins could do better than our current expectations. RIM has actively been reducing its BOM (bill of materials) on its devices including the Bold, Storm and Curve 8900. As well, the company is planning on introducing devices that are tailored for lower priced segments. We believe this also helps RIM gain more of the subsidy dollars from the carriers.

Maintain BUY and $110 target – RIM’s shares have been on a tear lately and are now trading at 17x F2011E consensus EPS. However, we believe that consensus is too low. As RIM’s EPS power becomes more apparent, we believe that consensus will move towards our estimates. RIM is currently trading at 15x our F2011E EPS estimate.

MRM
(disclosure – I own RIM)