Is Palm Empty? Analysts Drop Its Target Price to $0
Palm (PALM) cratered to a new 52-week low of $4.08 a share, or down 27.8%, after the smartphone maker warned that its fourth-quarter revenues would be roughly half of Wall Street's expectations and two analysts lowered their price targets for the stock to $0.
Palm, which gave that dismal assessment during its third-quarter earnings report after the markets closed Thursday, is losing any love that analysts had held out for the company.
Canaccord Adams analyst Peter Misek, for one, cut Palm's price target to $0 from $4 a share. And here's why he did it:
"We believe Palm's troubles will only accelerate as carriers and suppliers increasingly question the company's solvency and withdraw their support. With what appears to be roughly 12 months of cash on hand, an accelerating burn rate, a complete lack of earnings visibility, and substantial debt and preferred equity, we no longer see any value in the company's common equity. As such, we are reiterating our SELL recommendation and reducing our target to US$0.00."
A Morgan Joseph & Co. analyst also cut his Palm price target to $0, according to a CNNMoney.com report.
Questioning Palm's Long-Term Viability
For Palm, such assessments are like throwing lighter fluid on a building engulfed in a four-alarm fire.
Deepak Sitaraman, a Credit Suisse analyst, is equally concerned with Palm's burn rate. But his 12-month price target drop was less severe. He lowered it to $3 a share from $4.50.
"Given expectations for meaningful cash burn in coming quarters and poor visibility, we question Palm's long-term viability as a stand alone enterprise," Sitaraman said in his research note Friday. He also noted that he does not view Palm as "being well positioned to raise capital at this point in time."
Even the Vultures Are Holding Back
Tim Long, an analyst with BMO Capital Markets, had a different view of Palm's prospects, though not necessarily a more encouraging one:
"We think an acquisition is less and less likely as consumers clearly aren't interested in the OS, and generally, in the handset market, larger vendors tend to wait for smaller vendors to approach zero before they think about an acquisition," he said, adding in an interview, "They wait until a company is about to go out of business."
Long estimates Palm will likely burn through $150 million to $200 million in cash during its current quarter -- leaving it with approximately $390 million to $440 million in cash when its fiscal year closes at the end of May.
Palm was not immediately available for comment.