Palm shares rise 6 pct after analyst upgrade

NEW YORK (Reuters) - Shares of Palm Inc (PALM.O) rose 6 percent on Monday after a Wall Street analyst upgraded the stock, saying that Palm may report better-than-expected sales of its Centro smartphone.

J.P. Morgan analyst Paul Coster lifted his opinion to "overweight" from "underweight," citing Palm's depressed share price and optimism about Centro, a low-end handset introduced last September.

"Our channel checks indicate that Centro sales may be exceeding expectations," Coster said in a note to clients. "The JPM Asia team indicates that Palm production schedules at (contract) manufacturers in Taiwan may top our unit shipment forecasts in the next 6 months. Our sensitivity analysis suggests there's upside to earnings per share."

Palm shares were up 36 cents to $6.38 in late morning trade on Nasdaq.

The upgrade sparks a stock hard hit by product delays and increased competition from Apple Inc's (AAPL.O) iPhone and Research in Motion Ltd's (RIM.TO) BlackBerry. Palm's shares are down 31 percent since November and more than 57 percent in the past year.

Coster suggested investors buy Palm "at these levels with a 6 - 9 month investment time-horizon" but added the caveat that the company "has to execute well."

Execution is a key question for Palm as it works through a transition phase, now that it has sold a 25 percent stake to private equity firm Elevation Partners and brought in former senior Apple executive Jon Rubinstein as executive chairman.

Coster said Palm could grow in the market for smartphones -- many of which feature keyboards, touch screens, and the ability to read and send e-mail or manage documents -- should it be able to execute well.

"In doing this 180 degree turn on the stock, we are putting a lot of faith in the technology and design competence of the new talent introduced to Palm, by Elevation Partners, because our confidence in the Palm heritage leadership team is otherwise at a low point," he said.

(Reporting by Franklin Paul, editing by Gerald E. McCormick)