"We expect AudioCodes (Nasdaq: AUDC; TASE: AUDC) to report June quarter results in-line with our 7c estimate, and to provide a weak guidance for the September quarter," Merrill Lynch analysts Vivek Arya and Tal Liani write in a pre-results note on the VoIP technology company.
"We are reducing Sep Q EPS estimate to 7c from 9c. For 2005, we are reducing the EPS estimate to 29c from 33c, and for 2006 we are reducing it to 47c from 53c. Our new estimates are below the consensus," the note says.
"We believe AudioCodes is a high quality long-term play on the expected migration to Voice over IP and maintain our Buy rating. However, we are cautious near-term and believe that there is some slowdown in the VoIP market. Two key points:
"1.Decelerating topline growth. We believe the VoIP market is slowing down. For AudioCodes, we expect topline growth of 28% and 36% in 2005 and 2006, impressive but slower than 87% sales growth reported in 2004,and 67% in 2003.
"2.Expenses could grow. Boards and chips (Technology) are growing slower than Systems (Networking), which may require greater focus on Systems. This strategy could improve gross margins, but involve higher SG&A expenses and increase competitive risk.
"While we believe that the above concerns could result in some near term pressure on the stock, we maintain 12 month Buy Rating and $13 Price Objective.
"We believe the VoIP market is going through normal fluctuations of a new deployment cycle. We highlight the solid balance sheet ($2/share in cash), strong competitive position, rapid growth rate and high profitability.
"On valuation, the stock is trading at 42% below its 52-week high of $17, trading at 21x 2006E P/E. Therefore, we think most of the negatives are already in the stock while the positives highlighted above warrant a higher multiple."
AudioCodes shares closed at $10 in New York on Friday, giving it a market cap of $399 million. Arya and Liani set a $13 12-month price objective for the stock.
Published by Globes [online], Israel business news - www.globes.co.il - on July 25, 2005