Shares of PalmOne ( PLMO) surged Thursday after J.P. Morgan upgraded the stock to an overweight rating. In recent trading, shares were up $1.70, or 15%, to $13. In a morning note, analyst Paul Coster bumped up his rating on the handheld-device maker from neutral, citing strong demand for the company's Treo 600 smart phone and increased carrier interest in the gadget. PalmOne plans to add four more carrier partners to its current list of seven partners by the end of the year, he noted, adding that the expanded distribution should help offset normal seasonal volatility in Palm's business. In another auspicious sign, many companies have begun testing the email capabilities of the Treo 600. "With enterprise spending slowly firming, supply constraints easing, and expanding carrier relationships, we believe PalmOne is poised to begin direct sales to corporate IT managers, which could lead to higher margins and better visibility," said Coster. (J.P. Morgan hasn't done recent investment banking for PalmOne.) Coster expects Treo sales to account for over one-third of revenue in fiscal year 2005, up from about 28% in the fourth quarter of 2003. That shift, helped along by moves to contain operating expenses, should lead to positive operating margins throughout fiscal year 2005, he predicted. Coster called the shares "significantly undervalued" at 0.4 times enterprise value to revenue, compared to more typical multiples of 2.5 to 3 for similar companies. Enterprise value equals a company's market cap plus debt minus cash. PalmOne also looks well priced on a price-to-earnings ratio, according to the analyst, who notes that the stock trades at just over 17 times J.P. Morgan's fiscal year 2005 earnings-per-share forecast.