Palm: Canaccord’s Misek Still Thinks The Stock Is A Zero
Posted by Eric Savitz February 23, 2009,
The pressure is on Canaccord Adams analyst Peter Misek.
On December 18, with the stock trading at $2.20, Misek launched coverage of Palm (PALM) with a Sell rating and a target of zero. That call has so far been, well, less than successful. Palm, of course, went on to unveil the Palm Pre, to significant acclaim, and the stock has taken off like a rocket. As I write this, the stock is trading at $7.68, a gain of 249% since Misek’s bold but so far inaccurate call on the stock.
However, give Misek credit for this: he is sticking to his controversial forecast. This morning, Misek repeated his Sell rating and price target of zilch. Here’s his theory:
The Pre is “a great device with a solid OS,” but he contends that it is not “a game changer.”
The initial exclusivity period with Sprint (S) “will likely dampen Palm’s prospects in the U.S. due to Sprint’s questionable long-term financial viability and stressed capital structure,” with $18 billion in net debt and declining income.
Palm could burn $100 million in cash over the next two quarters before the Pre is launched.
When the Pre finally launches, there will be more intense competition with new devices expected from Research In Motion (RIMM) and Apple (AAPL).
Palm has “a major gross margin disadvantage” relative to rivals with 25.4% versus average 37.6% for the group.
Palm, he contends, would need to sell 4.5 million smartphones in FY 2010 “to justify any meaningful return to current share prices.” He notes the company has never sold more than 3.2 million phones in one year.
“Although the share price has moved against us recently on higher Pre and WebOS hype than we anticipated, we believe the sheet will face as economic realities set in,” he writes.
Today, the Street continues to ignore Misek; the stock is up 11 cents, or 1.5%, to $7.68. |
