Analysts at Nomura Equity Research expect Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) or Blackberry to post solid growth within the next two to three quarters in terms of revenue, units and gross profits, and the stock price of the company’s performance would be in line with the market.
Analysts Stuart Jeffrey and Woo Jin Hoo believe that the strong sequential trends for the Canadian smartphone manufacturer in the first quarter to the third quarter of the current fiscal year is driven by its broadening distribution, the launching of the Blackberry 10, and the possibility of upgrade cycle among loyal Blackberry fans both enterprises and consumers. Jeffrey and Woo expect the momentum of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) to “more than offset the more than linear headwinds” they observe in services revenue.
The analysts also suggested that the Canadian smartphone manufacturer to experience slow growth in the latter part of FY2014 and early months of FY2015 due citing that Blackberry lacks scale and skill sets necessary to profitability and differentiate in hardware and in applications and cloud services. According to them, Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) is expected to struggle with hardware profitability and lose its paying subscribers.
In a note to investors, Jeffrey and Hoo wrote, “We do not expect Blackberry to sustain more than low single-digit margins longer-term, and the share price is currently assuming high, single-digit margins. We believe that this view will likely prevail once/ if sequential growth starts to stagnate. We believe that this stagnation will is likely either late in FY14 or in early FY15.”
The analysts also stated that the stock price of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) is overvalued and they believe that near-term momentum will drive the shares of the company to a fair value.
Jeffrey and Hoo said, “Given the challenges of calling near-term numbers, we believe that investors should wait and potentially cut exposures late in the year, especially if an enterprise replacement cycle has kicked in, a cycle that could signal the peak of the short-term upturn.”
The analysts maintained their neutral rating for the shares of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) and $10 per share price target. According to them, the long-term challenges for the Canadian smartphone manufacturer are still the same despite the improvement of its near-term profitability and sequential revenue growth. They estimated that the company’s revenue and EBIT margin will increase by 17 percent and 2 percent in FY14, respectively.