Shares of networking gear maker Acme Packet (APKT) rose 50 cents, or 2%, today to close at $26.20 after Raymond James analyst Todd Koffman raised his rating on the stock to Strong Buy from Underperform, with a $34 price target, following the company’s cut in its Q4 revenue outlook amid telecommunications weakness.
Noteworthy, because Koffman has been especially dour on the stock in the last year. He started coverage at Underperform in May of last year, when the stock was trading at $77 or so. At the time he acknowledged the company’s entrenched position in sales of communications equipment for Internet voice telephony networks. But he also said the stock was out of alignment with the company’s addressable market opportunity.
After the latest warning from Acme, Koffman is inclined to argue the company is still a good company, but one whose stock now reflects more realistic expectations: “Recent missteps reflect exaggerated expectations complicated by unusual buying patterns (i.e., U-verse). We believe these potholes will temper management expectations and provide a realistic base for future growth.”
Where Koffman was inclined at one time to see the market opportunity as “exaggerated” for Acme, he now sees plenty of upside in the roll-out of Internet voice:
Line data is difficult to come by, but our estimates suggest less than 10 million of the 60 million business phone lines (U.S. only) have converted from legacy circuit switched voice to native voice over IP (via SIP trunking). We note, international markets are even further behind.
The difference now from last year, to Koffman’s way of thinking, is that while the installed base of Acme gear was already fairly heavy, i.e., saturated, at $77 a share, the available market in terms of business lines having converted to IP telephony is relatively wide open.
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