For the second straight day, shares of PortalPlayer ( PLAY) zoomed upward on Tuesday amid bullish reports on the chipmaker. PortalPlayer stands to benefit from the inclusion of its chips in new and upcoming products from Apple ( AAPL), according to notes issued by analysts with Thomas Weisel and Jeffries on Monday. Following those reports, Jim Cramer, co-founder and director of TheStreet.com ( TSCM),
touted PortalPlayer's stock on his "Mad Money" television show Monday night. On the heels of those reports, PortalPlayer's stock was up $2.17, or 7.5%, in recent trading to $31.17. It closed regular trading on Monday up $1.57, or 5.7%, to $29. PortalPlayer's chips are at the heart of Apple's iPod music players. Indeed, about 90% of the company's sales come from two contract manufacturers who build the iPods. Apple's ( AAPL) latest iPod, the nano, is selling briskly, which is a good sign for PortalPlayer, noted Jason Pflaum, an analyst with Thomas Weisel, in his report Monday. Pflaum, who has an outperform rating on the company's stock, upped his revenue and earnings estimates for 2005 and 2006. "Our checks reaffirm our belief that we are still in the earlier stages of the growth curve for the broader portable media-player market. PLAY's growth opportunities in the flash and handset market give us increased confidence in the company's mid- and longer-term growth prospects," said Pflaum, whose firm has not done recent investment banking for PortalPlayer. Meanwhile, Jeffries analyst Adam Benjamin reported that Apple will launch "in the next few weeks" a video-playing iPod that will also incorporate PortalPlayer chips. Apple will produce some 4 million to 4.5 million devices in the fourth quarter, which will likely be a boon to the chipmaker's revenue and stock, said Benjamin, who nevertheless maintained his hold rating on the stock.
"Although we believe the stock could react favorably to the introduction of the Video iPod as well as likely upward revisions to second-half consensus estimates, we continue to believe our long-term concerns outweigh the possible near-term upside at these levels," said the analyst, whose firm has not done recent investment banking for PortalPlayer. Likewise, Cramer was somewhat cautious about the chipmaker. Noting that the stock has already had a nice run -- it's up more than 90% since bottoming out in late April -- he said he would take some profits at this point if he already owned the stock and saw no reason to buy it immediately. But the latest news -- highlighted in the analyst reports -- bodes well for the company, Cramer said. And he sees the stock heading higher. The stock's run on Tuesday likely was the result of the mention on "Mad Money," said Paul Foster, an options strategist at FlyOnTheWall.com. Foster noted that in late afternoon trading, some 20,500 options on PortalPlayer's stock had already changed hands, compared to an average daily volume of about 3,400 options. Likewise, the stock's volume was well up on Tuesday as well, as more than 6 million shares had traded hands by late afternoon, up from an average of about 800,000. "When Cramer mentions something, it tends to get lots of play," Foster said. "It picks up the speculation."