Even With RIMM’s Management Shake-Up, Market Expectations Remain Very Low

Research in Motion (RIMM) announced late Sunday evening that the company’s co-chief executives, Jim Balsillie and Mike Lazaridis, who also co-founded the company, would be stepping down. This announcement comes amid significant pressure from the investors to overhaul the company, as they have struggled to remain competitive in the smartphone market. The board named relatively unknown Thorsten Heins, previously one of two chief operating officers, as the new chief executive. Though the stock was trading up in the pre-market on this news, it opened much lower and traded down around 6.5% throughout the day after Heins held an interview at RIM’s headquarters. During the interview, Heins stated he was confident in the company’s strategic path and would not seek to split up or sell the business. The investment community did not take kindly to the interview, as the stock was punished thereafter.

RIMM is trading at historically low levels, below book value. At a P/E’ of 4.1x and an EV/IC’ 0.8x, the market appears to be pricing in 4% ROI’ with 6% IC’ Growth over the next 5 years, compared to consensus analyst estimates of 22% for 2012, which 9% IC’ Growth YTD. These extremely low expectations makes the management shake-up all the more interesting, especially if any changes occur to the strategy to limit further ROI' declines.

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