CSFB is out with a rather major call on Palm (NASDAQ:PALM) raising their tgt to $18 (prev. $11).
Firm notes their new PF revenue/EPS for FY11 goes to $2.9bn/$1.06 from $2.2bn/$0.64. Analyst points out that the FY11 EPS is 68% above comparable consensus and their more constructive outlook is driven by 1) heightened carrier interest, 2) updated margin analysis, and 3) increased confidence that with webOS, Palm has developed a scalable platform to introduce new products in rapid succession.
Healthy growth, margin expansion ahead. The successful launch of the Pre at Sprint has raised carrier interest given Palm now offers a credible alternative to Apple. CSFB believes this will drive top-line growth of 144% in CY10 and their estimate is predicated on 7.7mn units in CY10. This implies 4.1%/11.0%/2.3% Global/NA/WE smartphone market share. In the core NA market, their estimate is based on 30%/10%/10% smartphone share at Sprint/Verizon/AT&T. This revenue growth together with GM expansion will drive OMs to 10.9% in CY10 from -13.4% in CY09. CSFB´s proprietary GM analysis based on actual Pre teardown data shows structural GM for the platform is 40.6%. Their model assumes Pre GM’s start at 25% and peak at 37%, and as such, they think risks to CY10 margins are actually to the upside.
FQ4 results on June 25th. Owing mainly to an on-time launch of the Pre and a lower marketing spend, we believe results while not good, are likely to be modestly ahead of expectations, implying lower than expected cash burn (of $104mn). CSFB estimates that cash likely troughed at $213mn in May.
Valuation. Palm shares trade on a P/E and EV/S of 10.6x (CY10E cash EPS) and 0.9x versus the peer group average of 13.6x and 1.3x. They believe meaningful upward revisions to consensus estimates will drive multiples higher, and the $18 target price is based on a 15x multiple applied to CY10E cash EPS of $1.21.
Notablecalls: This certainly is a gutsy call from CSFB. The new $18 target is the new Street high not to mention the FY11 EPS, which is way higher vs. consensus.
RIMM's conservative, cautious outlook should temper ones expectations for PALM. That may be a good thing if one looks at CSFB`s comments re: the upcoming qtr.
Unless we get another huge down day like yesterday, I think PALM can trade up towards $13.50-14 range.
Firm notes their new PF revenue/EPS for FY11 goes to $2.9bn/$1.06 from $2.2bn/$0.64. Analyst points out that the FY11 EPS is 68% above comparable consensus and their more constructive outlook is driven by 1) heightened carrier interest, 2) updated margin analysis, and 3) increased confidence that with webOS, Palm has developed a scalable platform to introduce new products in rapid succession.
Healthy growth, margin expansion ahead. The successful launch of the Pre at Sprint has raised carrier interest given Palm now offers a credible alternative to Apple. CSFB believes this will drive top-line growth of 144% in CY10 and their estimate is predicated on 7.7mn units in CY10. This implies 4.1%/11.0%/2.3% Global/NA/WE smartphone market share. In the core NA market, their estimate is based on 30%/10%/10% smartphone share at Sprint/Verizon/AT&T. This revenue growth together with GM expansion will drive OMs to 10.9% in CY10 from -13.4% in CY09. CSFB´s proprietary GM analysis based on actual Pre teardown data shows structural GM for the platform is 40.6%. Their model assumes Pre GM’s start at 25% and peak at 37%, and as such, they think risks to CY10 margins are actually to the upside.
FQ4 results on June 25th. Owing mainly to an on-time launch of the Pre and a lower marketing spend, we believe results while not good, are likely to be modestly ahead of expectations, implying lower than expected cash burn (of $104mn). CSFB estimates that cash likely troughed at $213mn in May.
Valuation. Palm shares trade on a P/E and EV/S of 10.6x (CY10E cash EPS) and 0.9x versus the peer group average of 13.6x and 1.3x. They believe meaningful upward revisions to consensus estimates will drive multiples higher, and the $18 target price is based on a 15x multiple applied to CY10E cash EPS of $1.21.
Notablecalls: This certainly is a gutsy call from CSFB. The new $18 target is the new Street high not to mention the FY11 EPS, which is way higher vs. consensus.
RIMM's conservative, cautious outlook should temper ones expectations for PALM. That may be a good thing if one looks at CSFB`s comments re: the upcoming qtr.
Unless we get another huge down day like yesterday, I think PALM can trade up towards $13.50-14 range.
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