The result of having drained existing BlackBerry inventory, and selling higher-margin BB10 units, is that RIM could earn $1.30 per share in profit in the fiscal year ending February of 2014, rather than the net loss of 46 cents the Street is modeling, Ferragu writes, which could boost the stock to $25:
With Blackberry 10 quarterly shipments ramping up from 3m units in 1QFY14
to 6m in 4QFY14, assuming gross margins for Blackberry 10 devices starting at 30% and coming down to 25% in 6 months, and Blackberry 7 gross margins stabilising at 15% over time, this would drive a FY2014 EPS of close to $1.30, even assuming Blackberry 10 users generate 50% less service revenues. If such a scenario gets priced in, we believe the stock can get to the $20-$25 range, or about 15x to 20x these post-turnaround earnings level and ~1x sales. This would be our price target on a 3-6 month horizon, if any such thing existed.
Still, he thinks it’s most likely the company doesn’t get sufficient traction with BB10:
Unless we see material signs of traction of Blackberry 10 in the high end and with Consumers, the company would be set to disappoint in the second half of the year with early signs of weakening traction. We would therefore recommend selling the stock once we have good indications that consumer traction isn’t there, which remains at this stage our most likely scenario.