PALM Morgan Joseph
5
The Disclosure section may be found on pages 4 - 5 of this report. December 21, 2009 Key Metrics PALM - NASDAQ $10.17 Pricing Date 12/18/2009 Price Target NA 52-Week Range $18.09-$2.00 Shares Outstanding (mm) 165.3 Market Capitalization ($mm) $1,681.4 3-Mo Average Daily Volume 11,911,560 Institutional Ownership 100% Debt/Total Capital NM ROE NM Book Value/Share ($2.76) Price/Book (3.7x) EPS($) FY: May Prior Curr. Prior Curr. 2009A 2010E 2010E 2011E 2011E 1Q-Aug (0.12) -- (0.10)A -- -- 2Q-Nov (0.73) -- (0.37)A -- -- 3Q-Feb (0.86) -- (0.41)E -- -- 4Q-May (0.40) -- (0.53)E -- -- FY (2.08) -- (1.44)E -- (2.27)E P/E NM NM NM Revenue($mm) Prior Curr. Prior Curr. 2009A 2010E 2010E 2011E 2011E 1Q-Aug 366.9 -- 360.7A -- -- 2Q-Nov 191.6 -- 302.0A -- -- 3Q-Feb 90.6 -- 350.2E -- -- 4Q-May 113.2 -- 315.0E -- -- FY 762.3 -- 1,327.8E -- 1,048.8E Q1 Q2 Q3 0 4 8 12 16 20 2009 1 Year Price History for PALM Created by BlueMatrix Company Description: Palm, Inc. manufactures handheld computers pr imaril y for use on mobile networks (90 % of sal es) . Based in Sun nyvale , CA, the company has recent ly restructured, and has intr oduce d devic es that address a lowe r-pri ced smar tphone marke t segment previously not addressed by Palm. Traditional customers are heavy enterprise users. Palm, Inc. Rating: Hold Upgrading to Hold on Valuation; Still Skepti cal on Management's Guidance Investment Highlights: We are upgrading shares of Palm to a HOLD rating from a Sell based on valuat ion. We continue to believe that management 's guidance of $1.6-1.8bn is overly optimistic, however, since management offered this gui dance, the stock has dropped mor e than 33%. Wit h shares having penetrated our former $10 price target intraday on Friday, to as low as $9.60, we believe that the Street is more than discounting management's ability to meet that guidance. We also anticipate that the Street is once aga in que sti oni ng whethe r or not Pal m is a via ble company given the expectations for $80mm in expected cash burn for F3Q10 even with the additi ona l $360mm in net procee ds rai sed back in September , as high mar ket ing spend may kee p cas h bur n at high levels . Eve n though Pre numbers were disappointing in F2Q10, Palm shares are currently trading at 1.5x our estimates, which are low on the Street (by 23%), compared to RIM's 2.2x CY2010 EV/Sales. We now feel that Palm is fairly valued and that the ri sk reward is no longer on the si de of the shorts. We ar e maintaining our CY2010 non-GAAP sales and non-GAAP EPS estimates of $1.15bn and a loss of $2.14, respectively. s F2010 Guidance May be Discounted but Still Appears Aggressive Although we now believe that Palm shares are more than discounting what we bel ieve is manage ment's ove rly opt imi sti c gui dance, we remain skept ical about Palm's ability to take on formidabl e compe titors. RIM, Apple, and Google offer significant competition, in our view, and stronger balance sheets to fund major marketing initiatives. s Palm's Next Data Point May Be Positive Given the potential for a new carrier announcement at the upcoming CES and 3GSM conferences, we believe the next data point released by Palm may be positive. Should Palm land a carrier, or combination of carriers, equal to the size of Verizon in F2H10, and have significant penetration, the n we believe ups ide pot ential to our estimates is possible, limiti ng downside for Palm shares for the time being, and giving hope to those who truly believe in Palm's long-term success. TECHNOLOGY Ilya Grozovsky 212-218-3856 [email protected] James R. Moore 212-218-3773 [email protected] Company Update / Rating Change
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Transcript of PALM Morgan Joseph
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The Disclosure section may be found on pages 4 - 5 of this report.
December 21, 2009
Key Metrics
PALM - NASDAQ $10.17
Pricing Date 12/18/2009Price Target NA
52-Week Range $18.09-$2.00
Shares Outstanding (mm) 165.3
Market Capitalization ($mm) $1,681.4
3-Mo Average Daily Volume 11,911,560
Institutional Ownership 100%
Debt/Total Capital NM
ROE NM
Book Value/Share ($2.76)
Price/Book (3.7x)
EPS($) FY: MayPrior Curr. Prior Curr.
2009A 2010E 2010E 2011E 2011E1Q-Aug (0.12) -- (0.10)A -- --
2Q-Nov (0.73) -- (0.37)A -- --
3Q-Feb (0.86) -- (0.41)E -- --
4Q-May (0.40) -- (0.53)E -- --
FY (2.08) -- (1.44)E -- (2.27)E
P/E NM NM NM
Revenue($mm)Prior Curr. Prior Curr.
2009A 2010E 2010E 2011E 2011E
1Q-Aug 366.9 -- 360.7A -- --
2Q-Nov 191.6 -- 302.0A -- --
3Q-Feb 90.6 -- 350.2E -- --
4Q-May 113.2 -- 315.0E -- --FY 762.3 -- 1,327.8E -- 1,048.8E
Q1 Q2 Q30
4
8
12
16
20
2009
1 Year Price History for PALM
Created by BlueMatrix
Company Description: Palm, Inc. manufactures handheld computers
primarily for use on mobile networks (90% of sales). Based in
Sunnyvale, CA, the company has recently restructured, and has
introduced devices that address a lower-priced smartphone market
segment previously not addressed by Palm. Traditional customers are
heavy enterprise users.
Palm, Inc.
Rating: HoldUpgrading to Hold on Valuation; Still Skeptical on
Management's Guidance
Investment Highlights:
We are upgrading shares of Palm to a HOLD rating from a Sell basevaluation. We continue to believe that management's guidanc$1.6-1.8bn is overly optimistic, however, since management offeredguidance, the stock has dropped more than 33%. With shares hpenetrated our former $10 price target intraday on Friday, to as lo$9.60, we believe that the Street is more than discounting managemability to meet that guidance. We also anticipate that the Street is
again questioning whether or not Palm is a viable company giveexpectations for $80mm in expected cash burn for F3Q10 even witadditional $360mm in net proceeds raised back in September, asmarketing spend may keep cash burn at high levels. Even thoughnumbers were disappointing in F2Q10, Palm shares are currently tradi1.5x our estimates, which are low on the Street (by 23%), comparRIM's 2.2x CY2010 EV/Sales. We now feel that Palm is fairly valuedthat the risk reward is no longer on the side of the shorts. Wmaintaining our CY2010 non-GAAP sales and non-GAAP EPS estimof $1.15bn and a loss of $2.14, respectively.
s F2010 Guidance May be Discounted but Still Appears Aggressi
Although we now believe that Palm shares are more than discounting
we believe is management's overly optimistic guidance, we reskeptical about Palm's ability to take on formidable competitors. Apple, and Google offer significant competition, in our view, and strobalance sheets to fund major marketing initiatives.
s Palm's Next Data Point May Be Positive
Given the potential for a new carrier announcement at the upcomingand 3GSM conferences, we believe the next data point released by may be positive. Should Palm land a carrier, or combination of carequal to the size of Verizon in F2H10, and have significant penetrathen we believe upside potential to our estimates is possible, limdownside for Palm shares for the time being, and giving hope to thosetruly believe in Palm's long-term success.
TECHNOLOIlya Grozov
212-218-igrozovsky@morganjoseph
James R. Mo212-218-
jmoore@morganjoseph
Company Update / Rating Cha
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Public companies mentioned in this report:
Research in Motion Ltd. (RIMM - $70.03 – NASDAQ)
Apple Inc. (AAPL - $193.81 – NASDAQ)
Google Inc. (GOOG - $597.80 - NASDAQ)Verizon Communications, Inc. (VZ - $32.75 – NYSE)
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Required Disclosures
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q30
4
8
12
16
20
2007 2008 2009
09/16/08I:Buy:$10
10/13/08Buy:$7
12/03/08Hold:NA
01/09/09Buy:$6.5
01/16/09Buy:$10
04/17/09Hold:NA
08/13/09Sell:$7.5
09/18/09Sell:$10
Rating and Price Target History for: Palm, Inc. (PALM) as of 12-18-2009
Created by BlueMatrix
I, Ilya Grozovsky, the author of this research report, certify that the views expressed in this report accurately reflect my personal view
about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specif
recommendations or views contained in this research report.
I, James Moore, the author of this research report, certify that the views expressed in this report accurately reflect my personal view
about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specif
recommendations or views contained in this research report.
Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc.
Morgan Joseph & Co. Inc. intends to seek or expects to receive compensation for investment banking services from the subje
company within the next three months.
Investment BankingServices/Past 12 Mos.
Rating Percent Percent
BUY [B] 55.70 30.51
HOLD [H] 42.50 24.44
SELL [S] 1.90 0.00
Meaning of Ratings
A) A Buy rating is assigned when we do not believe the stock price adequately reflects a company's prospects over 12-18 months.
B) A Hold rating is assigned when we believe the stock price adequately reflects a company's prospects over 12-18 months.
C) A Sell rating is assigned when we believe the stock price more than adequately reflects a company's prospects over 12-18 months.
Other DisclosuresThe information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to b
all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morg
Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securiti
mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their ow
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accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed a
our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide updat
to the opinions or information provided herein. Additional information is available upon request.
© Copyright 2009 by Morgan Joseph & Co. Inc.
Morgan Joseph & Co. Inc.
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Palm, Inc. December 21, 20
