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BroadSoft, Inc. (BSFT) Message Board

  • counterpathip counterpathip Mar 13, 2014 11:15 AM Flag

    PTT Research Pick Alert: Broadsoft (BSFT)

    So What Does it Mean for the Stock?

    The one thing I have tried to incorporate into every large position I take is a firm grasp of risk/reward. While most investors get the reward part down firmly, they ignore the risk part at their own peril. Risk for BSFT is they poorly execute a quarter and the stock gets hit, then what do you do? The beauty of BSFT is that it remains such an enviable acquisition candidate that buyers such as Oracle are salivating waiting for BSFT stock to correct so they can pounce and make a bid.

    If BSFT reports a light quarter and the stock sells off in one of the next 3 quarters, I would aggressively buy that weakness as M&A chatter will heat up immediately thereafter.

    Oracle acquired Acme Packet in February, followed by Tekelec in March. Acme Packet and BroadSoft were such great partners and such perfect complements that having one without the other would have been like buying a computer without software to run it. There have been rumblings in the space that the synergies between Acme Packet and BSFT are also so evident that Oracle is just waiting for the optimal moment to move on BSFT.

    As for Google, Google Apps has about 5 million users and 33-50% of the cloud office market. They need BroadSoft’s Unified Communications package to bundle with their office software suite to compete against Microsoft Office 365. This is especially true because Microsoft raised the ante by integrating Skype with Lync.

    As a result, Google desperately needs Broadsoft’s carrier/MSO relationships and carrier-level voice quality.
    Google Voice has been widely panned as a low-end consumer service. William Blair analyst Dmitry Netis estimates that there exists a $300 million opportunity for BroadSoft to monetize the existing Google ecosystem purely based on a $10 per user per month fee. I wouldn’t be surprised if this partnership takes off and leads to an acquisition by Google to stay competitive with Microsoft’s Lync/SharePoint/Skype bundle.

    Sentiment: Strong Buy

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    • That being said, if BSFT keeps going at its current pace ORCL and GOOG might miss their chance. As we get closer to 2014, BSFT’s growth is accelerating. Acquisition is a nice backstop, but my 2014 EPS estimate calls for $2.00. This is 20% above Wall Street’s estimates (which have been rising) and represents 40%+ growth over 2013.

      Because of BSFT’s enviable market positioning and strong product roadmap, I believe this level of earnings will attract the attention of professional investors. A PEG ratio of 1 would yield a P/E of 40 and therefore a valuation of $80. I’m modeling a more modest P/E of 25, leading to a 6-12 month price target of $50.

      This represents a 40% jump from current levels.

      In the coming weeks, I will provide greater depth into the reasons why BSFT is set to provide investors which such attractive returns.

      BIG NEWS!

      We’re going have a few big news items in the days ahead. Today’s news is that we’ve added a new analyst to the PTT Research team. His name is Josh Burwick and he’s a Wall Street veteran whose work I respect very much. In fact, he was a client of my service at AMR Research when he worked at Moore Capital, close to 10 years ago.
      Josh_profileJosh has worked in the investment field for over 15 years. He began his career at Goldman Sachs in investment research. Later, he joined Moore Capital, where he served as an analyst and portfolio manager specializing in technology. He managed upwards of $1 billion and delivered market-topping returns, including a monster 70% return in 2007 (versus 9.8% for the NASDAQ).

      Sentiment: Strong Buy

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