Research in Motion (RIMM) Ready to Breakout?

Folks, it is slow out there.  Really slow.  With earnings already behind us, I keep looking for set ups that provide nice risk/reward and there are very few.  


Right now, I am looking at Research in Motion (RIMM).  First, here is the latest commentary from Credit Suisse:



"Raising above consensus estimates. We raise our FY10/FY11 EPS to $4.38/$5.45 from $4.37/$5.32, and introduce our FY12 EPS of $6.00, which is 13% above consensus. Trading on a P/E of 11.6x our FY12 EPS, we believe RIMM (CS focus list stock) is inexpensive given a revenue/earnings CAGR of 24.0%/20.4% (FY09-12), sustainable margins and improving FCF conversion.


Raising smartphone market estimates. Today, in our report titled ‘Lower prices unleash volume’ we materially raised our smartphone market estimates for 2010/2011 to 230mn/293mn units, implying robust growth of 5%/27% yoy respectively. Our view on smartphone growth is driven in large part by smartphone factory ASP range of $100-$250. 


RIM’s global share is sustainable. We believe RIM will maintain global share of ~21% in 2010/2011 with NA share loss being offset by international share gains. Specifically in NA we expect smartphone share to decline to 43%/39% in 2010/2011 from 51% in 2009, owing to our expectation for Apple to go nonexclusive in the US in mid-2011 (see our Feb 4, 2010 report ‘Apple exclusivity: not imminent as some fear’). This being said, we would also highlight two potential offsets to NA share loss: 1) sustained international momentum (WE, LA and MEA) – less than 200bps of incremental international share in 2011 would fully offset NA share loss. 2) Our view on the timing for Apple to go nonexclusive in the US provides RIM with time to strengthen its offering and further grow the base. We model FY11/FY12 units and ASPs of 51.2mn (+38% yoy)/61.0mn (+19% yoy) and $297 (-11% yoy)/$268 (-10% yoy)."

Additionally, on Feb 16 and 17, three analysts (Broadpint, Caris, and Stifel Nicolaus) came out with positive commentary and asserted that the stock provides good risk/reward.  RIMM trade at only 13x forward earnings, while smart phone market is growing at 27% yoy.  The smartphone pie within the mobile handset market is the fastest growing sector any where.  And RIMM enjoys #2 position in terms of growth.  


Technically, the stock is setting up very nicely here.  Take a close look at the attached daily chart above.  There is a huge gap remaining to be filled all the way to $82-$85 level.  There is strong resistance at $72 and we are just grinding along here for a long time while the volume is slowly drying up.  If the stock can push higher and break $72 on volume, the buzz will go off and momentum to the upside can easily fill the gap.  


I am looking at the following call spread:


- Buy to open June $75 calls
- Sell to open June $85 calls


The spread is going for net debit of $2.70.  But I am not jumping in yet.  I would rather pay a little higher price, but I want to see the stock break above $72.25 before getting in.  Put this on your radar. 


Good luck!