Morgan Keegan Cuts Palm to Market Perform
Morgan Keegan downgraded Palm (PALM) to market perform from outperform, citing the handheld computing company's stock valuation.
Analyst Tavis McCourt says that Palm's shares have gained 32% year to date, and they now accurately reflect the company's likely growth outlook. McCourt notes that at 23.6 times his calendar year 2006 cash earnings per share (EPS) expectations, he believes the valuation reflects his expectation of 20% to 25% EPS growth over the next two years. He says his limited retail store checks point to strong demand for Palm's product the Treo 700w and steady demand for its Treo 650 at US carriers, but he notes that private-labelled 6700 product lines at Sprint Nextel (S) and Verizon Wireless are creating meaningful competition for Treos in the consumer market. He keeps his $1.63 fiscal year 2006 (ending May) EPS estimate.