RIM: Back From The Edge

Breathe easier, investors in Research In Motion (RIMM ). Some Wall Street pros contend RIM is unlikely to be shutting down its BlackBerry operations. They're betting that RIM and challenger NTP, which in 2002 filed a patent-infringement lawsuit based on RIM's BlackBerry wireless device, will settle. RIM stock jumped from 68.35 on Feb. 13 to 73.14 on Feb. 22 on rumors that RIM and NTP might sign a deal before completion of the trial, which begins on Feb. 24. "We view a settlement as the most likely" of three scenarios, says Tavis McCourt of securities firm Morgan Keegan. Another possibility: The judge may delay a decision so it can review the U.S. Patent Office's action on Feb. 22 rejecting NTP's patent claims. The least likely scenario: RIM could launch a "workaround" technology to replace Blackberry. McCourt rates RIM "outperform," with a 12-month target of 90. Kenneth Leon of Standard & Poor's (MHP ), who rates RIM a "buy," says the best result for both would be a settlement of, say, $500 million. He says RIM is attractive despite rivalry from Motorola (MOT ) and Nokia (NOK ) and potential risks from the lawsuit. RIM's growth could exceed 30% in 2007, he figures. Excluding litigation expenses, Leon expects RIM to earn $2.65 a share in 2006 and $3.50 in 2007, vs. 2005's $2.11. Goldman Sachs (GM ), which has done banking for RIM, calls the stock "attractive," noting that European subscriber growth was healthy in December and January. And pent-up demand in the U.S. continues to build, says Goldman, and will be probably "unlocked upon any resolution to the lawsuit."

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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