R-I-M Expected Earnings Reaction Climbing (RIMM, AAPL, NOK, PALM)

Research-in-Motion Ltd. (NASDAQ: RIMM) is set to report earnings after the close of trading today.  This will be a key report that can impact rivals such as Apple Inc. (NASDAQ: AAPL), Nokia (NYSE: NOK), and somewhat on smaller rival Palm Inc. (NASDAQ: PALM). The Thomson Reuters estimates as $0.94 EPS on $3.42 billion in revenues.  What is interesting is that analysts keep bumping up their targets ahead of the report.  We had revenue targets at $3.42 billion just at the start of the week and the company previously gave guidance of $0.88 to $0.97 EPS and revenue of $3.3 billion to $3.5 billion.

Last week, we saw targets raised and positive comments by analysts at Goldman Sachs, UBS, Paradigm, and Genuity.  The single standout was Canaccord, which downgraded R-I-M, Apple, and Nokia on Monday.  We now have an average price target close to $90.00.

This move is also on the heels of a whole round of upgrades in early April after the company’s prior earnings report.  The long and short of this is that analysts were behind the curve and the company did much better than expected.

Despite the notion that revenues are now marginally lower than on Monday, estimates did move up over the last 90-day period.`  We have already noted this with the positive group of analyst calls and we now have a whisper or unofficial earnings estimate of closer to $1.00 EPS.

The release of its new “Tour” smart phone will also have had no bearing on its last quarter at all.  The release is still ahead and the quarter cut-off date was even before the announced launch.

At the end of last quarter, its BlackBerry subscriber account base was approximately 25 million. It added 3.9 million net new accounts in the prior quarter.  The company’s guidance for this last quarter report was 3.7 to 3.9 million net account subscriber additions.  It also gave a margin forecast of about 43% to 44%.

We’ll be looking for direct trading reactions in Apple (AAPL) and Nokia (NOK), and we’ll even be looking at any reactions in Palm Inc. (PALM).

RIM is down almost 1% at $76.51 in early pre-earnings trading.  This stock was trading north of $80.00 just two days ago and it hit $86.00 briefly last week.  We think RIM needs to beat estimates handily now to stay higher even after a near-$10 sell-off from last week’s highs.  At the peak of the selling in March RIMM was trading under $40.00.  So the pre-earnings selling is major profit taking after the stock has more than doubled in just three months.

We have RIM’s 50-day moving average at $73.88, so if the stock gets hit and trades much lower then it may have even more overhang than what we have seen.  With this being such a battleground stock, we anticipate a larger than normal reaction in either direction to today’s earnings.

Options are hard to use as expiration is tomorrow.  Based on an early trade value, it looks like options traders are braced for “only” a $4.00 move in either direction.  We think that you could see a significantly larger directional move up or down that that $4.00.  Based on the trading we have seen this week and last week alone, it will not be a surprise at all if RIM goes back to one of its double-digit percentage changes after earnings.

Jon C. Ogg