Less Than Convincing Sell Side Research On Veraz Networks

Veraz Networks (VRAZ), which which went public in April at $8, is off to a slightly rocky start as a public company. A San Jose-based company that makes infrastructure for voice over IP networks, Veraz shares have already lost a quarter of their value; and note as well that the IPO priced below the originally expected $10-12 price range

Today, two of the underwriters on the deal picked up coverage of the stock. Jefferies & Co.’s George Notter started the stock with a Buy rating and an $8 price target (the IPO price, you’ll remember.) Notter writes that the stock is “one of the purest public company plays on the VoIP infrastructure market.” He says the stock has an “attractive valuation relative to other VoIP pure plays,” trading at 30.5x projected 2008 EPS of 20 cents, or 1.4x enterprise value/sales. He says recent weakness in the stock “presents a buying opportunity.”

That would be more convincing if not for the initiation of coverage today as well by Lehman’s Marcus Kupferschmidt, who started the stock with an Equal Weighting, asserting that he would be more aggressive with the stock if the company found more traction with Tier 1 carriers. Like Notter, he set an $8 price target on the stock. And he likes the 25% annual growth in the company’s core market. But he says that “given current liquidity in the stock and adjusting for risk,” a conservative rating is appropriate.

All of this raises an obvious question, which is, if these two guys agree that the stock would be reasonably valued at $8, how could their investment banking colleagues over on the other side of the wall go out and in good conscience get people to pay $8 a share given what their own analysts would have seen as limited to zero upside.

Other banks involved in the deal included Credit Suisse and Raymond James; neither has yet weighed in with a rating.

Oh, and just for the record: “veraz” is a Spanish word that means “truthful.”

Veraz today is up 2 cents at $6.05.

VRAZ 1 month chart