Merril Lynch low-balled potential appreciation of this stock
Report below...
What Has Changed?
Another death kiss to the VoIP sector came from NMS
yesterday, in the form of a profit warning.
NMS’s top customers have indicated they will defer orders
into 1Q2001 and will also take a more strict inventory of
management measures. NMS guided toward revenue
growth of 40%-50% for 2001 as compared to the prior
guidance of 60%-70%, and 4Q00 EPS of $0.06-0.08 vs.
previous expectations of $0.13.
CEO Says No Change in 4Q00 Projections
We called AUDC CEO today to comment on the NMS
announcement.
Although he was cautious about commenting on the
current 2001 outlook, saying that this business has poor
visibility in nature, he said that unlike NMS, he can see no
reason to change 4Q00 projections at this point.
Although NMS is viewed as a VoIP player by the market,
the CEO says that this company is NOT a direct
competitor of AUDC. He also said that despite having
some VoIP board sales, AUDC hardly sees NMS in its
target markets, as NMS is more focused on the signaling
boards than pure VoIP boards.
Attractive Valuation: Maintain Buy
We maintain our Buy rating. AUDC trades at 12.6x 2001E
EPS, while even in the worst case scenario of no growth
next year, the Company still trades at 18x P/E, both
attractive in our view.
Nevertheless we remain watchful of the market
environment since the current expectations for weakness in
the VoIP sector may prove to be correct later in 2001, and
may even be self fulfilling prophecies, yet we believe that
given the current valuation levels – most negative
scenarios are already in the price.
Therefore, we adjust AUDC’s 12 month price objective
due to the current market conditions. With a worst case
average EPS growth for the following few years of 30%
(in 4Q00 for example we expect the Company to grow
84% YoY), we set a target P/E of at least 30x.
This translates to a new 12 month price objective of $21,
91% above the current price.
Despite current “consensus” of lower 2001 EPS than
previously expected, we do not change our P&L model
yet. We think that we need to have more visibility into
2001 before making any such call. |
