Merrill Lynch comments on AudioCodes (NASDAQ:AUDC) after the co warned that 1Q07 sales would be $36-38mn, or 15% below firm's $43.7mn forecast.
MCLO believes the shortfall was broad-based and attribute it to underperformance at recent acquisitions and to consolidation turmoil among AudioCodes' large customers like Nortel, Alcatel-Lucent, and Verint.
Although recovery could take time and near-term visibility remains low, the firm maintains Buy rating as: 1) AudioCodes remains well exposed to secular growth in VoIP (20%+ CAGR till 2009, per Synergy); 2) the 22% decline in the stock already reflects most of the bad news; and 3) they believe management will cut costs aggressively to improve profitability, especially at their recent acquisitions. Firm also highlights the support from ~$3 in cash/share, which is ~39% of the current market cap.
While topline visibility remains limited, management could cut costs aggressively, especially in the underperforming acquisitions that have added $5-6mn in opex (+35%) without adding much by way of sales. Firm is lowering FY07 pro-forma EPS estimate to 33c from 47c, but believes a potential top-line recovery could eventually lead to EPS upside of as much as 40c. Lowers tgt to $10 from $14.
Notablecalls: Interesting comments by MLCO's Vivek Ary. While AUDC was an accident waiting to happen I would not be surprised to see some more downgrades today. Think the stock may be a buy if it gaps down this AM. That's the short term call. Longer term, I suggest you read what Blodget has to say about VoIP. Mixed emotions.
AUDC 1-yr chart: