Merrill Lynch Ups AudioCodes Price Target

Repeats Buy investment rating for the stock

Two weeks after adding VoIP player AudioCodes (Nasdaq: AUDC) to its list of stock picks, Merrill Lynch yesterday repeated a Buy rating for the Israeli company.

Citing the improved outlook, the investment bank raised its 12-month price target for AudioCodes by a whole three dollars to $16. The target is 23% above the company's closing price on Nasdaq last night.

AudioCodes stock has been leaping like an ibex, rising 17% this year. Seen from the end of November, the share has gained 33%, wiping out its slump earlier in 2005.

Analysts Tal Liani and Vivek Arya introduced forecasts for the year 2007. They expect AudioCodes to earn 60 cents per share, which is three cents more than Wall Street expects it to make. They believe AudioCodes is well positioned to win voice over Internet contracts, executed through OEM agreements, with huge clients like Nortel in Europe and Lucent in the U.S.

This year, 2006, they project that AudioCodes will earn 46 cents per share. Again, their forecast beats the Street by three cents.

AudioCodes stock is trading at 24 times estimated 2007 earnings per share. They feel that multiple is conservative, given that AudioCodes is expected to produce a 48% leap in profit this year and to grow earnings by 30% more in 2007.

The market for VoIP technology, which is AudioCodes' main stamping ground, will grow by 30% a year until 2009. Merrill Lynch predicts, which is more than the 25% growth the investment bank projects for AudioCodes' revenues.

Selective acquisitions during 2006 could create an upside, the analysts note.

Unlike its rivals, such as Sonus, which works directly with the telcos, AudioCodes supplies its systems to the major players: Nortel, lucent, NEC, UTS and 3Com, which sell integrative solutions. Merrill Lynch foresees AudioCodes' policy widening its operating margin from 11% to 14% this year, and to 17% in 2007. Further leverage could come through OEM agreements and collaborations.

For the fourth quarter of 2005 Merrill Lynch predicts AudioCodes will present $31.1 million sales, up 5% from he third quarter and 23% against the parallel quarter. The investment bank projects net earnings of 9 cents per share, or $3.6 million.