NEW YORK (AP) — Shares of handset maker Palm charged up 7.5 percent in premarket trading today after an analyst upgraded the company, saying its new operating system has boosted the company's potential to catch up with smartphone industry leaders Apple and Research in Motion (RIM).
"Rather than a 'one product Hail Mary,' we see webOS as a platform spawning a family of devices addressing a broader market opportunity," wrote RBC Capital Markets equity analyst Mike Abramsky. He upgraded the Sunnyvale, Calif.-based Treo maker to "Outperform" from "Sector Perform" and raised his target price on the stock to $12 from $5.
The Pre phone, the first webOS device and intended as a competitor to Apple's iPhone and RIM’s BlackBerry, has generated excitement in the press. Abramsky said the Pre, which should launch in May or June, is a "compelling alternative" to the iPhone, and he also expects multiple phones operating on the webOS system.
Abramsky altered his estimates on earnings and revenue, saying he expects a fiscal 2009 loss of $1.54 per share on sales of $728 million, compared with a prior estimate of a loss of $1.63 per share on revenue of $740 million. In fiscal 2010, he now sees a loss of $1.22 per share on revenue of $541 million, compared with his prior estimate of a 62-cent-per-share loss on sales of $1.04 billion.
The next couple quarters could see poor results due to possible launch delays and litigation, but Abramsky said he expects a 62 percent increase in webOS devices from fiscal-year 2010 to 4.1 million in the 12 months ending May 31, 2011, with smartphone market share doubling to 2.6 percent in current-year 2010. The stock price's volatility due to sliding earnings could thus be an attractive entry point, he said.
"We believe webOS has raised Palm's chances for smartphone leadership," Abramsky said.
He also sees Palm as an increasingly attractive acquisition candidate at $15-$16 per share because of the strength of webOS and the Pre.
Shares of Palm rose 7.5 percent in premarket trading to $8.45 — near its high point for the past 52 weeks. Shares have traded between $1.14 and $9.51 over that period.