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Strategies & Market Trends : Value Investing

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To: Jurgis Bekepuris who wrote (45981)	12/29/2011 9:18:45 AM
From: Mattyice	Read Replies (1) of 78702

Jurgis, I thought i use to be your favorite RIMM bear. I suppose its been a long time since i posted. Time for this value bear to come out of the woods. RIMM will be an interesting battle ground over the next year or two. IMO it has two options: - Turn focus to creating cash flow - Increase R&D and swing for the fences for growth This management seems oblivious to the first and favors the 2nd option. -Year Ending 2010 (Feb 11) had Net Inc of $3.5 billion -Income after R&D was $1.5 billion (Pretax 4.6 billion) -TTM Net Income Nov 11 to $1.4 billion. From the Margin of safety prospective using conservative estimates: -2012 Operating Income of $2.5 billion (assuming R&D cut about $1-2 billion in R&D i.e. giving up) -$500mil to $1bil can go to maintenance. -Est of pret-tax income of $4 billion and after tax cash flows of $3.5billion. Assuming you could further create cash flows for next 5-7 years losing 25% of your loyal crackberry base each year using tax rate of 25% and cost of capital at 10% you get a value of about $8.5 billion on a free cash flow basis. Its current market value of about $7 billion and enterprise value of $6 billion, that makes RIM look very cheap and have a margin of safety by about $2-2.5 billion It looks cheap on the surface, but i think this is where RIMM will not be pro-shareholder and continue to try and keep up with the Jones'. Actually after skimming through its latest conference call they are emphatic about not return cash to shareholders and will continue to keep spending on R&D, paying app developers, even acquiring (yuck!). If that happens you can throw the conservative estimates out the window, they could easily spend 2-4x that trying to save the ship. (though we could see some activist get involved) I would stick my money else where. But just my opinion

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