RIMM: Scotia Cuts To Hold; ‘No Faith’ In Management

Among the many responses today to Research in Motion‘s (RIMM) cut in its financial outlook, none explicitly offered a ratings change–until now.

Scotia Capital’s Gus Papageorgiou a short while ago cut his rating to Sector Perform from Sector Outperform, and cut his price target to $21 in Canadian dollars, down from a prior $45.

In a startling sign of how tough it can be to gauge the stock’s direction, Papageorgiou’s rating cut today comes just three days after he reiterated his bullish stance, on Monday, writing at that time that the stock was “absurdly oversold” at $16.60.

But today, Papgeorgiou views the shares as deserving of a less robust valuation. He cut his target P/E multiple to 4 from 6.

Given the disappointing year we see no point in putting any faith in RIM’s management team. With 7.0 sales failing to provide the expected boost in volumes we were looking for and no date set for the new BBX devices, we see no financial momentum for RIM until at least the second half of next year. Given the disastrous 2011 the company has had, we believe the potential for a shake-up in management and or sale of the company has increased.

Papageorgiou points out that the company will continue to add subscribers this year, and will continue to be profitable, but he thinks management change may be the next important “catalyst”:

Fiscal 2012 has been nothing short of disastrous for the company filled with delayed product launches, poor investor communications, missed financial targets, and terrible execution. There is little chance that investors are likely to accept the status quo. We believe management has to signal that changes are coming if it hopes to maintain any investor base. The Co-CEOs have built this company to a global player with unique competitive advantages, but the failure to recognize and react to the shifting dynamics in the competitive environment and the chronic mis-executions in the past year cannot go unnoticed. If management or the board does not take actions to bring in new blood at the top of the organization, we believe the shareholder base will become more active in the operations of the company. Additionally, we believe the company has to begin to look at strategic alternatives. RIM’s network architecture, enterprise dominance and 70M subscribers continue to make this company attractive. Additionally given that we believe the PC will suffer at the hand of tablets and at some point everything will go mobile, RIM’s ability to scale mobility in the enterprise and deliver a secure end-to-end solution is attractive to several players.

RIM shares closed down $1.81, or almost 10%, at $16.77.

Previously:
RIM: Not A Takeout Target, Say Citi, Barclays, December 2nd, 2011;
RIM: Remember, They�re Still Profitable, Says Morgan Keegan, December 2nd, 2011;
RIM: Could Be 40% Downside, Says Pac Crest, December 2nd, 2011