PALM - 8.05 would be loading up on puts
Expect a series of downgrades to apply pressure
Ahead of the Bell: Palm downgraded
JPMorgan downgrades Palm amid short-term challenges; praises new operating system, phone
* Tuesday January 20, 2009, 8:57 am EST
NEW YORK (AP) -- A JPMorgan analyst downgraded Palm Inc. Tuesday, saying the smart phone maker faces significant short-term challenges -- though he recommended that investors hold their existing positions and look to add to them if the stock pulls back.
"(Following) strong month-to-date outperformance, we are not prepared to add to positions in the stock ahead of a series of execution challenges, and in the face of weaker consumer spending," wrote Paul Coster in a note to investors. He downgraded Palm to "Neutral" from "Overweight."
"In this market, we can only stomach so much risk," the analyst added. Palm's shares are up significantly since the start of the year, from around $3 at the end of December to $7.91 on Friday.
Palm recently introduced its much-awaited new operating system, WebOS, as well as a touch-screen iPhone competitor called the Pre. Both were well-received at the Consumer Electronics Show in Las Vegas earlier this month.
"We believe Palm has authored possibly the best (operating system) in the handset market," Coster wrote. "The Pre is a good device too, with specifications that position Palm well in the smartphone market in 2009."
Nonetheless, Coster called Palm's short-term challenges significant. The company is likely to burn about $150 million of cash in the next three quarters, he wrote, adding that it also "must launch the Palm Pre into a crowded market at a time when consumer spending is contracting." In addition, wireless carriers are demanding significant marketing and pricing concessions from their suppliers, he added.
"That said, we believe PALM can do it; we think the webOS/Pre is sufficiently differentiated to spur demand and cause a major disruption in the global handset industry," Coster wrote.
In premarket trading, Palm shares fell 5.7 percent to $7.46. |
