Shares of Research in Motion (RIMM) are up $1.44, or 9%, at $17.92 this morning after Sanford Bernstein’s Pierre Ferragu raised his rating from Underperform to Market Perform, writing that after a 77% drop in the stock from highs in February, potential failure is “well priced-in” to the shares.
Ferragu actually cut his price target to $16 from $20.
Ferragu sees “upside risk” that shareholder activism could lead to a “change in management and a takeover.”
He doesn’t advise buying on that scenario till there’s evidence of such, but he does note what he considers some compelling valuation metrics.
First, RIM trades at 2.8x the cash stream from its service fees in the last 12 months. Even on our numbers, a buyer paying a 50% premium would pay-back 62% of an investment with the cash RIM can generate in the next 3 years from the service fee it charges monthly per user, mostly from a slow moving corporate user base.
Moreover, the shares are valuing each subscriber at only $120, and “many companies could be interested in such an asset.”
Noted investor Laszlo Birinyi this morning named RIMM one of his five top picks for 2012 on a CNBC segment.
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