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Technology Stocks : PALM - The rebirth of Palm Inc. -- Ignore unavailable to you. Want to Upgrade?

To: FaultLine who wrote (1341)	8/24/2000 7:26:27 PM
From: Mang Cheng	Read Replies (1) \| Respond to of 6784

"Goldman Says Palm's a Buy at 350 Times Profit: Call of the Day" 8/24/00 2:10:00 PM Source: Bloomberg News New York, Aug. 24 (Bloomberg) -- Palm Inc. shares, priced at 350 times this year's expected profit, look like a bargain to Goldman, Sachs & Co. analyst Vik Mehta. That's because Mehta is comparing Palm to its competitors on a price-sales basis. He's also using a discounted cash flow model, more popular for non-technology related companies, in analyzing the company. ''At this point, Palm's profits are such small numbers that it makes more sense to look at price-to-sales and the (discounted cash flow),'' said Mehta, who began covering Palm today with a ''recommend list'' rating. On a price-earnings basis, the maker of handheld electronic organizers looks expensive. Palm's PE ratio is more than twice that of the Nasdaq Composite Index and more than 10 times higher than the Standard & Poor's 500 Index. That doesn't dissuade Mehta and investors who are willing to be on companies with fast sales and profit growth. Handspring Inc., the electronic organizer company whose co- founders once led Palm, trades at 32 times sales, more than double that of Palm, which sells for 14 times sales. Research in Motion Ltd., the Canadian company that makes Blackberry two-way pagers and said it wants compete directly with Palm, trades at 19 times sales. ''I think he's making a reasonable call,'' said Mike Binger, a portfolio manager with Lutheran Brotherhood Inc., which owns about 320,000 Palm shares. ''When you get a brand new business, there's a lot of marketing and promotional spending, up-front costs,'' he said. Palm has only ''very slight earnings.'' Doubling Sales Palm, spun off in March by 3Com Corp. in a sale arranged by Goldman, is expected to report a profit of 11 cents a share this fiscal year, which ends in May 2001, and 22 cents in fiscal 2002, according to the average estimate of analysts surveyed by First Call/Thomson Financial. The company's sales doubled to $350.2 million in the quarter. Mehta's not alone in his bullishness on Palm. Of the eight analysts who follow the stock, seven rank it ''buy'' or ''strong buy,'' while one calls it a ''hold.'' The stock has risen 5.1 percent since its spinoff from Palm in March. Palm rose 2 to 39 15/16 today. ''Palm has a good economic model and has a good record of coming out with killer products,'' Mehta said. ''In the handheld world, they're the equivalent of a Mercedes or BMW. They have great products and set their own prices.'' Mehta said his discounted cash flow model justifies his target price of just over 55. That's a 38 percent premium to today's closing price. ''More companies should be valued like this,'' Mehta said. ''At the end of the day, you should be valuing a company on its ability to generate cash.'' Mehta, who's worked at Goldman for five years, covers eight companies, including Inktomi Corp., Infospace Inc., Phone.com Inc. and DoubleClick Inc. He worked at Andersen Consulting Group as a technology consultant for two years after graduating in 1994 from the Massachusetts Institute of Technology. Mehta rates six of the companies he covers ''market outperform,'' Goldman's equivalent of a ''buy,'' while three are on the ''recommend list,'' the firm's equivalent of a ''strong buy.'' Goldman, besides serving as lead manager of Palm's spinoff, held 604,575 shares as of March, making it the seventh-largest holder, according to Bloomberg data. cnetinvestor.com Mang