Morgan Stanley recommends buying Motorola call options
Investors should buy Motorola Inc. call options because the maker of Droid X smartphones may capture a larger market share and boost the value of the mobile devices unit it is spinning off, Morgan Stanley said.
Equity derivatives strategists Christopher Metli and Sivan Mahadevan recommended purchasing January $9 calls to buy the stock, which climbed 0.9 percent to $7.77 at 1:18 p.m. New York time and is almost unchanged this year. The calls rose 1 cent to 31 cents.
Sales of phones such as the Droid that use Google Inc.'s Android platform are "accelerating rapidly" and Motorola's mobile-phone unit, which is being spun off in the first quarter, "is worth more than the market believes," the strategists wrote. The Android platform is the most popular smartphone software in the U.S., overtaking Apple Inc.'s iPhone and the BlackBerry from Research In Motion Ltd., market researcher Gartner Inc. said in a note today.
"Option prices look cheap versus handset and other tech hardware peers," the New York-based strategists wrote. "This trade covers earnings in October and the run-up to the spin."
Implied volatility, the key gauge of options prices, for the Schaumburg, Illinois-based company's options expiring in 30 days is 35.77, compared with a 38.82 average for 20 other technology and telecommunications companies tracked by Bloomberg. The January $9 calls traded with a 34.92 implied volatility.
Morgan Stanley rates Motorola at "overweight" and has a $9.75 share-price forecast because the company has a growing group of Android products, rising profit in the handset unit and "runaway" growth in the market for phones that run Android, analyst Ehud Gelblum wrote in a July 30 report.
Motorola's share of the smartphone market may grow to 7 percent in 2012 from 4 percent in the first quarter of this year, while shipments of Android-based phones may grow to 60 percent of all units from 27 percent during the period, the New York-based analyst said.
Droid is Verizon Communications Inc.'s line of phones that run the Android operating system.