Credit & Equity Analyst Ratings Duel at Palm (PALM)

Palm Inc. (NASDAQ: PALM) has lost that massive stock surge that we saw for what felt like way too long throughout 2009.  There are two key analyst calls that now may act as an analyst duel.  One is yesterday’s BMO Capital Markets and the other is non other Standard & Poor’s.  Throw in a high, but declining, short interest and the race is back on in Palm as to whether its future is made of shinola or made of something else in the notorious analogy.

Palm was weak yesterday and fell $0.90 to downgraded yesterday to $13.38 after BMO Capital Markets downgraded the stock to an “Underperform” rating from an already neutral “Market Perform” rating.  BMO already took its sub-market target down to $10.00 from $11.00.  BMO was concerned over Apple’s iPhone and R-I-M’s Blackberry competition, as well as what is coming down the pipe from Google’s Android phones.  Yet this morning we have an upgrade on the corporate credit side of Palm from Standard & Poor’s.

Be advised that a raise in the corporate credit rating does not necessarily coincide with what equity traders look at all the time, but when a corporate credit rating gets raised it often does have better implications for what common stockholders are investing in.

S&P raised the corporate credit rating to “CCC+” from “CCC” and its senior secured debt rating to “CCC” from “CCC-“.  While these are junk ratings by far and hardly sound like a major endorsement, it is at least a step in teh right direction for the company itself.  More importantly, the ratings are removed from CreditWatch and the outlook assigned is “Positive.”  That is no sign of any imminent upgrades ahead, but it is better than a stable outlook.

The S&P upgrade is based upon Palm’s prospects that its refreshed product line could support a sustained business position as a niche supplier.  Also noted was the ability to achieve free cash flow break-even while liquidity remains sufficient.  The recent securities offering of $359.9 million may have been dilutive to common holders but S&P noted that it materially improved Palm’s liquidity.

The short interest data was released just yesterday as well.  We also saw a recent drop in the short interest data yesterday as the short interest from October 15 fell to 43,473,334 shares from a slightly higher reading of 44,168,346 shares at September 30.  For whatever it is worth, that is the third consecutive drop in the short interest reported twice monthly.

Shares are down 4.2% at $12.82 today, but that is above the intra-day lows of $12.73.  Its 52-week trading range is $1.14 to $18.09.

JON C. OGG