Bullish analyst on Palm goes bear-ish

Palm Inc. saw its stock drop this morning – and then rebound – after downgrades by Morgan Keegan and Avian Securities L.L.C.
The downgrade by Morgan Keegan appeared significant because analyst Tavis McCourt has been consistently positive on Palm’s prospects for a turnaround in its fortunes. McCourt based his new view on Palm’s potential need for fresh capital to complete its turnaround.
Palm has had a hit with its affordable, $100 (and cheaper) Centro smartphone at top carriers in the United States, proving that the Treo purveyor can deliver new, popular designs with advanced functions. But the device carries a slim profit margin and the sale of millions of them has not delivered the much-needed boost to the company’s bottom line.
And Palm continues to toil on a next-generation handset platform that is due next year.
McCourt appeared not to doubt Palm’s ability to produce its new platform, but had more prosaic concerns. He said in a note to investors today that while Palm’s cash balance was $248 million at the end of August, it will fall to $75 million next year as the new platform is launched, possibly constraining the company’s ability to support the launch.
The analyst also noted that Palm made filings this week that would allow it to raise new capital by issuing additional stock or taking on more debt.
The last capital infusion appeared to be the participation of private equity firm Elevation Partners in fall 2007 to the tune of $325 million.
In December, McCourt said that Palm “has long-term opportunities, if its execution improves.” Despite the caveat, McCourt said then he thought the company had time to make good on its plans.
“Keep in mind,” McCourt said in December, “that although Palm has lost market share, it is shipping more handsets this year than last year.”