Thursday, August 13, 2009

Palm (NASDAQ:PALM): Downgraded to Sell at Morgan Joseph; $7.50 target

Morgan Joseph is giving Palm (NASDAQ:PALM) a kiss of death downgrading the stock to a Sell from Hold and establishing a $7.50 target.

Firm is downgrading their rating on Palm shares to SELL from HOLD given their belief that Pre sales have slowed significantly. Their checks have shown that Pre sales have slowed to approximately 100,000 units in July, from approximately 200,000 in June, and Morgan Joseph believes August shipments are tracking lower than July's. This would bring Pre shipments below our previous 400,000 estimate for the F1Q10 quarter. As such, they have lowered their Pre shipment estimates to 350,000 for the August quarter. Firm believes that their 400,000 units estimate for Pre was a low estimate relative to Street expectations and, as a result, believe that should the company even achieve these numbers, it would be viewed as a disappointment by investors. Morgan Joseph also believes non-Pre shipments were lower than expected for the August quarter primarily as a result of cannibalization by pre purchases. They expect F1Q10 sales and a non-GAAP EPS loss of $158mm and $0.24, respectively.

Firm is lowering their CY2009 sales and non-GAAP EPS estimates to $484mm from $677mm and to a loss of $1.72 from $1.52, respectively. They are also lowering CY2010 estimates to $612mm from $879mm and EPS loss to $0.90 from $0.63, respectively. With Palm shares currently trading at 3.6x new CY2010E EV/Sales and significant road-map risk, they believe Palm shares are currently overvalued, especially compared to Research in Motion's present 2.3x multiple on CY2010E EV/Sales.

Margin Implications
Should sales prove to be in line with firm's checks, they believe price cuts may be looming going into the holiday season in an effort to spur holiday sales of the Pre. This could, in turn, hurt Palm margins as they believe that Palm will have to make price concessions to Sprint. Should margins be negatively impacted, profitability would be pushed out beyond management's FY2H10 guidance, which they are now increasingly skeptical about, and would make raising more money an increasingly realistic probability.

Notablecalls: I must say the call makes perfect sense. Gartner released their Q2 WW mobile sales data yesterday morning and their comments were the following:

'... This quarter also saw the debut of the long-awaited Palm Pre based on the new web operating system. "This device attracted a lot of media attention but showed mixed results at the cash register as sales only reached 205,000 units," said Ms Cozza. "Palm currently ranks tenth in the smartphone market and Gartner remains concerned about its ability to gain traction outside the US market, where its brand is less strong...'

I think PALM is dead. Why? Now that I have toyed around with Bberry and Apple's iPhone I just don't see how Palm Pre can beat these at the counter. What exactly does the Palm Pre have that the competitors (even Nokia) don't have? Ability to run several apps in the background? Yeah, nice but what else? Really.

the PALM has been reduced to a geeky toy and will remain that.

The only thing keeping the shares away from the abyss is the 27% short interest.

Today I see the shares hitting $12 (or possibly lower).

1 comment:

notablecalls said...

Looks like I underestimated two things:

- the short interest

- the fact the stock was off 4 pts in the last week or so. The Gartner data caused the stock trade off big time yesterday.

There was a huge buyer (possible cover) around 12.50 and so the squeeze began..

Bad call on my part. Hope you didnt get hurt much.