In a note to clients Friday morning entitled, “Out Come the Wolves,” Deutsche Bank analyst Jonathan Goldberg reiterates a “Buy” rating on shares of Palm (PALM), raises his price target to $17 from $16, and writes that hand-wringing about the company’s “Pre” smartphone are wrong.
“We think market fears about return rates, weekly order trends and applications development,” for the Pre “are off the mark,” writes Goldberg. “Our checks continue to point to solid demand and carrier interest.”
A number of analysts have questioned whether the Pre has unusually high return rates at Sprint (S), the exclusive carrier, due to mechanical issues with the phone, while some have said device sales slowed markedly after the Pre’s introduction in June. Thursday’s blog post by Pali Capital analyst Walter Piecyk is a prime example of such.
Goldberg says his talks with Palm management suggest Pre return rates are no higher than usual for a new device; his chats with developers suggest a high level of interest in the Web OS software of the phone, and he expects Palm to show progress with its applications catalog by September. Component suppliers, furthermore, indicate Palm is up’ing its orders from them, which he takes as a positive sign for Pre sales down the road.
Although Palm stock has attracted quite a bit of volatility, he’s confident the August fiscal Q1 is on track to beat his estimate for a 68-cent-per-share net loss. “We think the Street is still underestimating the company’s improved execution and long‐ term operating leverage,” writes Goldberg. His $17 price target comes from a discounted cash flow model using a 12% discount rate.
Palm shares Friday closed up 28 cents, or 1.8%, at $15.73.