Citigroup's Daryl Armstrong: Sell Research In Motion ASAP

Get out! Get out now!

That’s pretty much what Citigroup’s Daryl Armstrong this morning advised investors to do with shares of Research in Motion (RIMM).

Armstrong this morning offers an interesting position on the stock, which he rates a Sell. On the one one hand, he says sales of the Blackberry Pearl have been “very strong” in the November quarter, far better than he had expected. In fact, he now sees 720,000 units selling in the quarter, up from his previous estimate of 400,000.

On the other hand, he thinks the Pearl has cannibalized sales of other Blackberry phones, rather than significantly expanding the company’s share of the market. In fact, he thinks the total number of phones shipped in the quarter will be 1.65-1.75 million units, “significantly below the high end of expectations on the Street.” Armstrong says checks with the retail channel finds that no more than 30%-40% of Pearls have been sold to non-Blackberry users.

“We think the Pearl accelerated device replacement and upgrades but the impact on net [customer] additions will be disappointing,” he writes. “Without a meaningful acceleration of subscriber net additions, RIMM becomes more like a traditional handset company. This makes it harder to justify the premium multiple that RIMM currently enjoys over other handset players. Therefore, we recommend that investors take profits right now.”

Meanwhile, while there has been excitement over the launch of Pearl sales with Cingular, Armstrong says Cingular big push in the smart-phone category is for the Blackjack, a phone made by Samsung which is exclusively sold through Cingular.

The negative call today is despite the fact that Armstrong today increased both his earnings estimates and price target on the stock. He now sees profits for the February 2007 fiscal year of $3.25 a share, up from $3.19; for 2008, he’s now at $4.23, up from $4.13; for fiscal 2009, he now sees $4.58, up from $4.46. His price target is $104, up from $92.

Resarch in Motion shares today are currently down 2 cents at $128.73.

RIMM 1-yr chart: