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Polycom's Videoconference Picture Is Improving

Videoconferencing is on the rise, yet the leading maker of high-quality equipment, Polycom (PLCM), has been shellacked: Its December quarter was below Street forecasts, and 2005's first period was no better. Also, low-end gear, mainly from China, is adding competition. All that drove Polycom stock from 24 in December to 14 now. But Timm Bechter of Legg Mason Wood Walker rates it a buy. A migration to all-Internet networking will let videoconferencing piggyback on the system -- and Polycom will be the big beneficiary, figures Bechter. Another boost is home videoconfer-encing -- a big market, he says, to help revive investors' interest. He expects second-quarter earnings to be closer to Street forecasts, at 18 cents a share, vs. 17 cents a year ago. For all 2005, he sees 78 cents on sales of $582 million, and 86 cents in 2006, on $647.5 million. Another Polycom bull, Gregory MacArthur of investment firm Viewpoint 2000, notes that Polycom has had positive cash flow for the past 28 quarters -- and $518 million in cash on its balance sheet with no debt. With a p-e of 19, the stock is at the low end of its historical level, says MacArthur. His 6-to-12-month price target: 21 to 22.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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