Bottom Fishing in Research In Motion (RIMM)

Just when Research In Motion Limited (Nasdaq: RIMM) investors thought things couldn't get worse... they did -- and fast.

Everyone on the Street knew a profit warning was coming but it was much worse than most expected.

Just two short months ago the BlackBerry maker cut its Q1 outlook, but adamantly stood by its $7.50 target for the year. Wall Street laughed at this target. Even the normally-behind-the-curve consensus was only looking for $6.29 for the year. Now RIM is admitting its failure... saying the company now sees EPS of $5.25-$6.00. With guidance now cut, the consensus has fallen in the middle of that range, or $5.62.

So what now?

When you can't trust the company's numbers, you have to guess what the "real" earnings power of the company is based on the facts as they are known.

Here are the facts, plain and simple:

• RIM has lost the smartphone war
  
• Market share will be rapidly lost
  
• Carriers have backed away
  
• The company will miss this year’s back-to-school season with fresh products
  
• RIM is losing mind-share
  
• The PlayBook tablet product is inferior and offers no hope

Another fact about RIM is that it is still profitable... for now. When evaluating an investment in any company earnings still matter because as an investor, if you buy a company, public or private, and can make your money back in a few years then it is a good investment. If you have $10,000 for example and can make that $10,000 back in 5-10 years plus still have your original investment then it’s good deal.

So what does earnings power from RIM look like and what is a stock price you can buy and be guaranteed to make your money back? While that is a hard question to answer, below is our take on it.

Let’s start with the cash the company has and then add in some future EPS assumptions.

• RIM has $2.9 billion in cash and equivalence, or $5.50 per share.
  
• Even though things are horrible, RIM should be able to hit the bottom end of guidance, or $5.25 per share in earnings this year.
  
• Let's drop earnings by $1 per share each year until the company falls into negative territory -- a much worse scenario than most analysts on the Street expect. So for FY12, RIM should be able to earn at least $4.25, in FY13 $3.25, in FY14 $2.25, FY15 $1.25, and FY16 $0.25. (As a comparison - Deutsche Bank, Friday's most bearish analyst, is at $6.34 for FY11, $4.10 for FY12 and $3.68 for FY13)
  
• Adding cash plus these minimum EPS "guesstimates" and you get to $22/share. This is the price you can buy RIM and likely make your money back.

Shares may never get to this level and of course the company could get bought or turn things around.

Until there is better visibility into earnings, shares will likely languish. However you can be ready and convicted to pounce and back the truck up if shares get near this $22 price.

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