Goldman Issues Favorable Report Within 20 Minutes Of Palm's Earnings Release... And Goldman's Follow On Offering

Tyler Durden's picture

And so the pump and dump continues. Within 20 minutes of Palm's earnings release (one wonders just how much of a promptly completed "fill in the blanks" report this was) and disclosure that it is issuing a 16 million share follow on offering, joint-managed by none other than Goldman Sachs, the 85 Broad firm sends out this email (highlights added):

Sent: Thursday, September 17, 2009 4:20 PM

 

Subject: Palm, Inc. (PALM): Strong results and FY10 guide; equity raise should help fund growth

 

Goldman 360 Alerts has determined that the following matches your Alerts setting.

 

Palm, Inc. (PALM): Strong results and FY10 guide; equity raise should help fund growth

 

Goldman Sachs Global Investment Research September 17, 2009

 

COMPANY UPDATE Neutral

 

Palm, Inc. (PALM) [$14.66]

 

Strong results and FY10 guide; equity raise should help fund growth

 

What's changed

 

Palm reported solid F1Q non-GAAP sales/EPS of $361mn/($0.10), above GS at $340mn/($0.20) and the Street at $291mn/($0.25) on much stronger than expected Pre shipments. We estimate Pre shipments of 670k, compared to GS/Consensus at 640k/550k. The company provided F2Q (Nov) sales guidance of $240-270mn, compared to GS/Consensus estimates of $424mn/$347mn, and FY10 (May) guidance of $1.6-1.8bn, compared to GS/Consensus of $1.9bn/$1.6bn. In addition, Palm announced an equity offering of 16mn shares for working capital & general corporate purposes.

 

Implications

 

On balance, we view Palm's results and guidance positively, as solid F1Q results and FY10 guidance more than offset disappointing F2Q guidance. We think the significant QoQ sales decline expected in F2Q is due to the timing of the Pixi launch (which we now expect in November vs. October previously), and declining Palm Pre and Treo Pro sales as those product cycles mature.

 

However, Palm's full year guidance implies a very significant ramp in the February and May quarters, likely driven by the ramp of Pixi at Sprint, Palm Pre at Verizon, and potentially other carriers. We are lowering our FY10 non-GAAP EPS to $0.09 from $0.28 given weak F2Q guidance, but leaving FY11 at $0.77 (Street $0.42) and FY11 at $1.10. Separately, we view Palm's equity offering, in conjunction with its recent price cut of the Pre at Sprint to $149 from $199, as an indication that the company is aggressively targeting volume growth, as reaching scale in the smartphone business is more important at this stage than margins.

 

Valuation

 

There is no change to our 12-month price target of $15, based on 25X our non-GAAP CY10 EPS estimate (including ESOs) of $0.60.

 

Key risks

 

Downside risks relate to execution and competition, while upside risks stem from faster than expected WebOS adoption or a take-out.

 

Investment list memberships

 

Neutral

 

Coverage View: Attractive

 

United States. Communications Technology

A very useful note to all longs, especially those who earlier today got a call wondering if they had any interest in purchasing Palm shares via the Goldman equity syndicate. Oh yes, here is the front page of the preliminary follow-on propectus. Splitting the 5% of equity raised, should provide Goldman with a nice $5 million fee.

And here are the disclosures to the Palm report:

  • Goldman Sachs has received compensation for investment banking services in the past 12 months: Palm, Inc. ($14.66)
  • Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Palm, Inc. ($14.66) [Oh yes, there is more of this shadiness coming up]
  • Goldman Sachs had an investment banking services client relationship during the past 12 months with: Palm, Inc. ($14.66)
  • Goldman Sachs makes a market in the securities or derivatives thereof: Palm, Inc. ($14.66)

And this, once again, is how Wall Street keeps perpetuating its tried and true games. Of course, FINRA, as Zero Hedge already pointed out, thinks this practice is perfectly legal and legitimate, thank to an October 2008 (no surprise on the timing: coming at a moment when regulators would do anything and everything to prop up collapsing stock prices) decision allowing underwriters to issue favorable research notes on follow on offerings in as brief a period of time as 20 minutes after they arrange the offering themselves. As always, Zero Hedge asks the question: of what use is the Wall Street regulatory body if it not only allows, but encourages this kind of pump and dump.