I’ve mentioned the past few months that I am seeing many things that remind me of 1999 including analysts who have no way to justify current valuations, hence are either coming up with innovative new measures OR are using far out years (2012, 2013, 2014) and trying to back into a valuation. This morning I mentioned Acme Packet (APKT), which was indicating +8% premarket. It is now up 18% on the day. While an expensive stock in the mid $50s it is now in the mid $60s and of course the analysts need to find a way to justify the price. So they are using not 2011 estimates (which are a full 11 months out) but 2012 (23 months out). And even on year end 2012 we are talking of 40xish PE multiples.
Barron’s has a run down of a few analysts’ comments which I’ll copy below. The most bemusing was the first guy… he moved his price target from $43 to $65 ($22), while moving EPS up from $0.97 to $1.05 for 2011. If you reverse engineer it, that means those extra 8 cents are worth $22 in price. Put another way those 8 cents carry a nearly 300x PE multiple. Hey, whatever you need to do to partake in the Ben Bernanke block party 1999 redux.
(Let me reiterate I like Acme a lot, I am just chuckling at what I am seeing in a market with too much Fed liquidity chasing too few assets – the same patterns of justification as we saw 12 years ago.)
Richard Valera, Needham & Co.: Reiterates a Buy recommendation and raised his price target to $65 from $43, while raising his estimates for this year to $304 million in revenue and $1.05, from a prior $283 million and 97 cents. He notes strength in the business in Q4 came from the buildout of 3G wireless networks, prompting greater need for the company’s gear. A speed-up in corporate buying of equipment boosted bookings with corporate customers to 20% of the total bookings, from the mid-teens in prior quarters. Valera’s target price is a 45 times multiple of his 2012 EPS estimate of $1.35, after backing out $3.90 in cash per share.
Katherine Trebnick, Avian Securities: Reiterates her “Positive” rating on the stock, and her $65 price target. The results continue Acme’s streak of beating and raising, she writes. The company’s “SIP trunking” technology” continues to be “a key area of IT investment,” she writes. And carriers are driving the move to phone networks based entirely on Internet Protocol (IP), which propels sales of SIP gear. Her checks show that Verizon Communcations (VZ) and AT&T (T) are adding to such IP connections, and the smaller carriers have doubled their investment in it. (Verizon made up 25% of Acme’s revenue in the quarter, both in wireline and wireless units, she notes.) Trebnick believes the company can expand its addressable market in 2012 for such equipment. Trebnick raised her Q1 estimate to $71 million from $63.6 million in revenue, and her non-GAAP EPS estimate to 25 cents from 22. Her estimate for 2011 revenue goes to $310 million in revenue and $1.05 from $302 million and $1.02 previously. Trebnick values the stock at 40 times her 2012 estimate for $1.46 in earnings, backing out cash.
Paul Silverstein, Credit Suisse: Reiterates an Outperform rating and raises his price target to $92 from $55, which is so far, the highest target I’ve seen on the stock. He reiterated today estimates for this year that were already well ahead of consensus: $315 million in revenue and $1.14 in EPS. The company’s forecast for this year is “extremely conservative,” he believes, given anther record quarter for revenue and margins, the company’s competitive position, what he believes it its long-term earnings potential. Given how much wireless represented in revenue growth — Verizon was responsible for almost all of the increase in revenue, bookings, backlog, and customer activity — Silverstein sees additional opportunities for the company in the build-out of 4G wireless networks, the next wave of bandwidth.
Jeff Kvaal, Barclays Capital: Reiterates an Overweight rating and raises his price target to $70 from $50. The company’s earnings “leverage” in the quarter was limited by sales and marketing rising faster than revenue, which shows some lack of expense control. But the 2.3-percentage-point rise in gross margin led to a 1-point rise in operating margin. He, too, thinks the forecast this year is conservative. Kvaal lifted his estimate for this year to $1.16 from a prior $1.10. It’s even possible that could rise to $1.30 this year, he believes. Again, Kvaal’s target represents a 40 times multiple on his 2012 estimate of $1.68.