BlackBerry maker Research In Motion must launch innovative devices on schedule and offer credible earnings forecasts to win back the trust of investors made wary by its missteps, an analyst said on Tuesday.
In a note to clients, RBC Capital Markets analyst Mike Abramsky cut his price target on RIM shares to $29 from $35 and slashed his estimate for earnings per share for the current fiscal year by 11 percent, and for the next fiscal year by almost 19 percent.
RIM shares lost more than 4 percent to close at $22.73 on the Nasdaq on Tuesday.
Abramsky said RIM remains a potential buyout target due to its proprietary messaging services, global subscriber base and strong patent portfolio. He valued a takeout at $30 a share and named Microsoft, Cisco, IBM and Nokia as possible buyers.
An activist investor, Jaguar Financial, is talking to some of RIM's major shareholders about plans to empower RIM's board to look at options including spinning off patents or selling the entire company.
Abramsky's share-price target is still well above RIM's current share price, but the change moves RBC below the $31 average forecast of analysts. Analysts' forecasts for the share price range from a low of $18 to a high of $75.
In February, RIM shares changed hands for as much as $70, but the stock has slumped after a series of profit warnings, coupled with the botched launch of its PlayBook tablet computer, a competitor to Apple's iPad.
RBC's earnings per share estimates for RIM of $4.95 for fiscal 2012 and $5 for 2013 are about 10 cents a share higher than the average analyst estimate.
RIM said last week it now expects to reach only the low end of its previous forecast for earnings per share in fiscal 2012, which ends in March next year. The company had forecast earnings of $5.25 to $6 a share.
Urging RIM's board to take a more active role in overseeing management decisions as the company brings in new products, Abramsky said RIM's products and software have not been competitive for years.
The company once dominated the smartphone industry with business-friendly devices, but it has struggled as Apple's iPhone and later Google's Android software have gained market share, particularly in the United States.
Abramsky said the BlackBerry maker has lost credibility with investors by retracting and missing its own forecasts.
RIM reported dismal second-quarter earnings last Thursday, sending its shares sharply lower. It shipped far fewer BlackBerry smartphones and PlayBook tablets in the quarter than either the company or analysts had forecast.
In a detailed earnings filing published on Monday, RIM said U.S. sales in the quarter were halved from a year earlier to $1.1 billion, while sales outside the United States, Canada and Britain rose 38 percent to $2.3 billion.
RIM's global sales excluding the United States, Canada and Britain rose between 88 and 128 percent on an annual basis in each of the previous four quarters.
Abramsky said RIM still has a chance to turn its fortunes around based on a sizable subscriber base of 70 million, support from carriers as an alternative to Apple and Android, global growth, and a strong patent portfolio.
RIM has launched a string of refreshed phones on its existing software and plans to launch another batch early next year using the QNX software found in the PlayBook.
It is expected to debut long-awaited PlayBook features including an Android app player as well as email, calendar and other functions long associated with the BlackBerry at a developers' conference in October.
Moving to the powerful QNX platform gives RIM a chance to make its software competitive, but discarding its existing operating system forces developers that build applications for it to change the way they operate.
"Four years after iPhone launched, RIM still hasn't launched competitive smartphone innovations or addressed its 'app gap'," Abramsky wrote.
Abramsky said RIM had "lost the app battle and developer interest in BlackBerry has significantly diminished" making its successful emulation of Android all the more vital.
RBC said that although RIM trades at only four times its fiscal 2011 earnings, it does not expect that valuation to improve until RIM addresses its credibility gap.
(Reporting by Alastair Sharp in Toronto; editing by Peter Galloway and Janet Guttsman)