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The unified collaborative communications (popularly known as video conferencing) market is going through consolidation phase. Polycom Inc. (NASDAQ:PLCM) remains the only pure-play video conferencing solutions provider which is yet to collaborate with another company. The company will declare second quarter 2010 financial results on July 15 after the closing bell. Polycom is a leading solutions provider for video conferencing, with an estimated 40% share of the market.

Agreement of Analysts

The overall estimate revision trend is very flat. Over the last 30 days, 1 out of total 8 analysts covering the stock raised his earning estimates for both the second quarter and fiscal 2010. No analyst made any downward earning estimate revision during this period. The current Zacks Consensus Estimate for the second quarter is 21 cents per share, which is actually indicating a 5.11% fall from the prior-year result.

We believe increased competition in the videoconferencing market is the main reason for this negative outlook. After Cisco System Inc’s (NASDAQ:CSCO) acquisition of Tandbarg and Logitech International SA’s (NASDAQ:LOGI) purchase of LifeSize Communications, Polycom is facing severe pricing pressure.

Nevertheless, the current Zacks Consensus Estimate for fiscal 2010 is 93 cents per share, which indicates a substantial gain of 18.59% year over year. We believe positive sentiments come from the future growth potential of the videoconferencing industry. As a result of economic downturn, business enterprises on a global basis are restricting travel budgets as cost control measure. This makes Polycom’s high-definition telepresence solutions a cost-induced alternative in an increasingly interactive world.

Magnitude of Estimate Revisions

In synergy with the flat estimate revision trend, the Zacks Consensus Estimate for the second quarter 2010 earnings per share remained the same during the last 30 days. However, for fiscal 2010, the Zacks Consensus Estimate decreased by 1 cent in the same time period.

Our Recommendation

Currently Polycom is a short-term Zacks #2 Rank (Buy) stock. This is primarily due to several positive industry trends that may allow Polycom to maintain healthy profit margins and a strong balance sheet. At the same time, this is also our view that these positives are already reflected in the current valuation leaving little room for above-market gain. The stock price moved up 53% in the last one year. We thus maintain our long-term Neutral recommendation for Polycom.

Source: Polycom Inc.: Earnings Preview

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