RIM: Could Be 40% Downside, Says Pac Crest

Analysts have started to weigh in on Research in Motion’s (RIMM) fiscal Q3 warning and PlayBook tablet computer price chopping announcement this morning.

The stock is down $1.62, or almost 9%, at $16.96, having deepened its losses from what it experienced in the pre-market session.

The harshest note that I’ve seen this morning is from Pacific Crest’s Brad Erikson, who says the company is stuffing the channel with BlackBerry units:

We believe RIM aggressively filled the channel this quarter while sell-through did not materialize as the company had hoped [�] Our current FQ4 forecast calls for handset unit shipments of 13.0M which we believe may still be a bit too high [�]

Price pressure will only continue, he thinks, as the company sells more “low-end” devices to primarily emerging market customers. And he sees 40% downside from here:

Given today�s announcement that the company will pursue a more aggressive strategy around the PlayBook priced at negative gross margins, we believe this will only bring further harm to the company�s valuation. Exiting the August quarter, RIMM had a book value of $18.92 per share. Given today�s updated tablet strategy announcement, we believe this will reduce book value by roughly another $1 per share. We believe the stock may see some near-term support from value seekers but ultimately, we see RIMM as a classic value trap and see fair value closer to $10-$12 per share.

Jennifer Fritzsche with Wells Fargo, who rates the stock Market Perform, writes that “In short � it is not pretty here.”

“We believe the overwhelming demand for the iPhone (especially in the North American market) has continue to shift the market away from the RIMM product line up at an accelerating rate.”

Fritzsche had already maintained a 2012 EPS estimate lower than forecast, at $4.86, which is what she reiterates today.

RBC Capital’s Mike Abramsky notes that BlackBerry product mix last quarter shift “to lower ASP devices,” and that sell through of the devices is now deteriorating in the current quarter.

“RIM’s soft Q4 outlook sustains concerns re further franchise erosion, and raises the bar for turnaround.”

Abramsky thinks the stock, which has a 3.7 times P/E, by his reckoning, may test its low of 3.2 times.

William Power with R.W. Baird, who has an Underperform rating on the shares, and a $20 price targets, thinks estimates will have to come down further even after today:

“We continue to believe that Street estimates for fiscal 2013 could be too aggressive, which the expected trends in FQ4 seem to support. We currently forecast fiscal 2013 EPS of $3.95 vs. consensus of $4.55.”