On May 14, 2014, we issued an updated research report on Polycom, Inc. (PLCM). The company continues to show strong signs of improvement as its Unified Communications Personal Devices segment reported solid global growth.
Polycom has delivered positive earnings surprises in three quarters last year, with an average beat of 38.54%. The company reported improved financial results for the first quarter of 2014 with the bottom line beating the Zacks Consensus Estimate while the top line was on par with the same.
Polycom extended its video conferencing technology agreement with Microsoft Corporation (MSFT), primarily targeting the enterprise unified collaboration market. The company is one of the most vital business partners of Microsoft and provides hardware for the latter’s video chat and VoIP software, Lync, which can be used to replace traditional phone systems. Lync-compatible voice devices, with double-digit growth rate, have become a major growth driver for Polycom.
Furthermore, Polycom’s newly-launched Group Series video products are gaining significant market traction and have already contributed 36% of the total group video revenue in the reported quarter, reflecting a year-over-year growth of 26%. Moreover, the successful integration of OpenStep and Microsoft Lync technology into Polycom’s voice service is consistently driving desktop and conference phone demand. As per industry analysts, the voice market is poised to grow 16% in the next two years. Polycom’s advanced voice service will help it to capitalize on this opportunity while moving ahead.
Moreover, the company’s cost-control policy, to be implemented in fiscal 2014, is likely to improve margins. Polycom is currently undergoing a transition from a hardware-centric to a cloud and software-centric business model. It has also made several product enhancements for its popular RealPresence platform, which we believe will act as tailwinds for the company going forward.
Polycom had a low debt-to-capitalization ratio of 0.20 at the end of the first quarter of 2014. Moreover, the company plans to complete its buy-back program by repurchasing 1.5 million shares by the end of second-quarter 2014. Such a significant buy-back program is likely to boost the company’s earnings in the next quarter.
Polycom currently carries a Zacks Rank #1 (Strong Buy).
Stocks That Warrant a Look
Other stocks worth considering in this sector include ShoreTel, Inc. (SHOR) and Ubiquiti Networks, Inc. (UBNT). Both carry the same Zacks Rank as Polycom.