Needham Sees 39% Upside in Acme Packet Shares

Shares of computer networking equipment maker Acme Packet (APKT) could have upside of roughly 39% to $18, writes Needham & Co. analyst Greg Mesniaeff.

The company’s “exceptionally strong” second quarter results indicate, says Mesniaeff, that “carrier spending continues to stratify into multiple high-growth and low-growth infrastructure segments,” and the company’s technology for connecting Internet phone lines to traditional phone company switches is one of the more high-growth segments of the market, he thinks.

Mesniaeff says Acme is the “most compelling” small-cap telecom equipment stock out there, and he foresees 35% annual earnings growth for some time to come. All that is worth a price-to-earnings multiple of 38x his 2008 earnings-per-share estimate of 47 cents, Mesniaeff writes.

Unlike Goldman Sachs’s Brantley Thompson, who wrote following the second quarter report that he was concerned with whether the company was still adding enough new customers, Mesniaeff trumpets Acme’s market share:

Acme Packet currently holds a 56% share of the [session border controller, or SBC, equipment] market in the U.S., according to industry market researcher Infonetics Research, which forecasts that worldwide revenue for SBCs will increase from $128 million in 2006 to $552 million in 2010. According to that data, the company has grown its market share from 26% in 2004, to 35% in 2005, and to 56% in 2006.