Who’s Better Into Earnings: Research-in-Motion or Palm? (RIMM, PALM, AAPL, T)

So, both Research-in-Motion (RIMM-NASDAQ) and Palm (PALM-NASDAQ) report earnings Thursday after the close.  The question is, Which is a better stock going into the earnings report?  The thing is that R-I-M is up almost 28% this year, and Palm is is up only 15%.  There is a reason, but many may wonder with R-I-M if the stock needs a bit more of a breather than the recent pullback.  Here are the expectations:

RIMM: expected to post $1.06 EPS & $1.06 Billion revenues;
PALM: expected to post $0.15 EPS & $406.5 Million revenues.

R-I-M has already had a leadership step down announcement and we already know about the upcoming restatements for years back on options writedowns. R-I-M is also already trading down about $14.00 from recent highs.

Palm has already announced job cuts and already sold a 25% stake to Elevation Partners for $325 million and added former Apple iPod guru and former Apple CFO into the company (and got rid of Benhamou, yeah). It is also paying a special $9.00 dividend financed by $400 million in new debt and the $325 million investment.  So it has essentially become a quasi-controlled entity that probably removed a buyout premium, and it is leveraging up its balance sheet.  This recapitalization is expected to close in calendar Q3.  palm also has yet to have any quarter with the added Foleo companion sales (at $499 per unit), if that even makes much of a dent.

Both may offer guidance, but the truth is that the guidance is really out the window beyond a few weeks because these both have will have to contend with somewhere around 1 million iPhones being shipped from this week forward, and the "Jesus-phone" as it has been dubbed has really never been dealt with from R-I-M and Palm as a competitor.  The true saving grace for R-I-M and Palm is that AT&T (T-NYSE) has the exclusive on iPhones and AT&T already sells both Palm Treo’s and R-I-M Blackberry phones.  That means that lost PDA-phone business at other carriers will only be the real result of other carriers losing business to AT&T.  Steve Jobs has forecast in the vicinity of 10 million iPhones by the end of 2008, and that is his to make or not.  Both the Palm and R-I-M PDA phones are sold at AT&T and elsewhere for far less than the iPhone (at 4G $499 or 8G $599).

All the shares listed in the June over May short interest are up as well:

Apple (AAPL) had 29.8 million shares short in mid-June, up from 27.9 million in May.
Palm (PALM) had 20.7 million shares short in mid-June, up from 15.2 million in May.
R-I-M (RIMM) had 10.8 million shares short in mid-June, up from 9.89 million in May.

Some analysts have taken R-I-M targets north of $200 and $18+ seems to be the average analyst target for Palm.  This one is really too hard to call as to which will do better after earnings, particularly with all the "event launch" players making long and short bets into the iPhone release Friday. 

Unfortunately, this feels like a coin toss match that is merely for the runner-up position.  Based on recent quarters it feels like Apple (AAPL) and R-I-M (RIMM) are winners over Palm (PALM), but we’ll find out how these stocks move after the close on Thursday.  It may also be worth a reminder that both stocks could trade quite differently by the end of Friday with the media frenzy covering the iPhone than they do in after-hours trading on Thursday evening after the earnings reports and conference calls.

Jon C. Ogg
June 28, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.