Seems something is stirring in the world of “unified communications” and Internet voice services: there are a couple of positive initiations this morning of�Internet voice calling software maker BroadSoft (BSFT), both fairly upbeat.
BroadSoft shares today are down 18 cents, or half a percent, at $36.81
Joanna Makris of Mizuho Securities starts the stock at Buy, with a $43 price target.
BroadSoft’s “BroadWorks” suite of programs lets telcos and cable companies and other carriers reply Internet Protocol-based voice service in their networks.
Makris makes the case the move to unified communications is part of the broader trend to revamp and streamline corporate applications, through things such as “cloud computing.”
“We believe companies exposed to various components of the UC food chain should outperform the overall market due to the growing mandate of enterprise CIOs and service provider network architects for simplification, increased efficiency and cost savings,” she writes.
Makris also opines that the value of intellectual property and the customer base makes Broadsoft and other unified communications stocks attractive acquisition targets.
Makris justifies her price target by comparison to peers:
based on 37x estimated CY12 EPS of $1.17 � a premium to comparables such as Acme Packet (APKT), F5 Networks (FFIV) and Riverbed Technologies (RVBD)�owing to the organization�s combination of premium revenue growth and operating margin/profitability leverage. Our target price is also in-line with software companies like VMware, which has sales growth and operating margins similar to Broadsoft�s (+20% Y/Y and ~30%, respectively).
BroadSoft also received a Buy recommendation from Brigantine Advisors’s Kevin Dede, who starts the stock with a Buy rating, and a $42.50 price target, writing that the company should see increasing demand for its programs given an “accelerated, intensified migration toward Internet Protocol use in communications networks.”
The stock is not cheap, Dede acknowledges, trading at approximately 30.8 times his estimate for $1.20 per share in profit next year (which is in line with Street consensus.)
Dede justifies his claim BroadSoft shares should trade at a 35 P/E by a couple of means.
One, the company has had earnings upside: “Over the past four reported quarters, BroadSoft’s earnings have delivered a positive surprise between 46% and 142%.”
Two, even using the current multiple of this year’s projected profit, 33, gives a price of $39, he argues, closer to his own price target.
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