Palm, Inc. (NDAQ:PALM) shares moved down $1.05, or 5.74%, to $17.25 after it was downgraded by JPMorgan analyst Paul Coster. The move follows recent speculation that the company may be interested in putting itself up for sale, which helped jump the stock price over 10% on Friday. Those rumors were somewhat confirmed today after the Wall Street Journal reported today that the company is working with Morgan Stanley to evaluate its options, citing people familiar with the matter. There is speculation that these options could include a sale to Nokia Corporation (NYSE:NOK) or a private equity firm. But Palm has been considered a buyout target for years, is now finally time?

Many investors believe that Palm is an attractive buyout target for several reasons. The obvious reason is the fact that Palm owns Treo, which is the second best selling smart phone behind Research in Motion Limited's (NDAQ:RIMM) Blackberry. The Treo is carried by 85 different carriers around the world, which gives it a huge advantage over new market entrants. The lesser known reason why Palm is a good target involves its financials. Palm currently generates $15 of sales per share, which gives it a price to sales ratio of one compared to RIMM's P:S ratio of ten. Meanwhile, Palm is also sitting on $500 million in cash and an additional $500 million in NOLs (net operating loss carry-forwards), which can offset taxes in any acquiring company. And finally, there would be a lot of synergies between Palm and other players in the market. When company's look at possible acquisitions, they look at how they could leverage their existing infrastructure to reduce costs in their acquisition. In Palm's case, many investors are betting that a buyer could cut at least 20% of their operating costs through economies of scale, which equates to a $1/share gain in cost savings alone!

So, if Palm were to be acquired, how much would a buyer pay? Many analysts believe that given the company's ownership of the Treo, NOLs, cash on hand, and other intangible assets, Palm could sell for as much as $25 per share. Remember that speculation of a Palm sale has been going on for years now, so don't get too excited. But this is definitely a stock to keep on the radar as the company mulls its options with Morgan Stanley!

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