Palm: Sale Seems Unlikely

Following up on last week’s round of rumors, the Wall Street Journal yesterday reported that Palm (PALM) has hired Morgan Stanley to help the company explore strategic options, including the possible sale of the company, an investment from private equity or even making acquisitions of its own.

Motorola (MOT) and Nokia (NOK) are rumored as potential bidders for Palm which makes the Treo smartphone, among other devices.

The Street yesterday seemed a lot less excited about the prospect of a Palm sale than it was on Friday.

Casey Ryan, an analyst at Nollenberger Capital, yesterday downgraded the stock to Neutral from Buy, noting that the stock had hit his $17 price target. “We are aware that there has been a surge in speculation in the media on a potential buyout of Palm by a competitor or a move by a private equity firm to take Palm private,” Ryan writes. “While we believe that either of these outcomes is possible, we cannot categorize them as likely or claim that the speculation is based on any fundamental research… Beyond $17, we believe that the risk/reward for investors becomes much more even and less attractive as a new investment.”

J.P. Morgan’s Paul Coster yesterday dropped his rating on the stock to Underweight from Neutral, asserting that the risk-reward trade-off is now “unfavorable.” Coster asserts that “Palm’s product line is stale, price-based competition will likely weigh on ASPs and gross margins and R&D could climb in FY08 as Palm races to develop a new Treo platform.”

But what about a takeover, Paul? “We are skeptical that a takeover is pending, and that it can happen at a significant premium to where PALM currently trades,” he writes. “We believe there is value in the Palm brand and channel, but neither fits well - strategically - with a tier 1 handset OEM’s.” (To translate: neither Nokia nor Motorola seems likely to buy Palm.)

Palm yesterday retreated $1.34, to $16.96.

PALM 1-yr chart

Comments

[Dan Jacome:]

galleon isn't babysitting -- this is for real.

2007 Mar 06 12:04 PM