Baird Provides Some Communications Cloud Coverage, Initiates Coverage On 2 Names

Baird Equity Research offered color on the communications cloud, which is gaining traction at a rapid pace. Analysts William Power and Charles Erlikh expect a number of companies to gain from their well-placed positions within the space.

Specifically, the brokerage initiated its coverage on RingCentral Inc (NYSE: RNG) and 8x8, Inc. (NASDAQ: EGHT) with a Neutral rating with price objectives of $24 and $15, respectively. The lead analyst believes the two stocks are trading at the higher end of the historical levels, although it was lower than the SaaS peer average.

In their research note, the analysts opined, "We are positive on the significant growth opportunities, and view M&A as a possible catalyst. On the other hand, expectations are already high, with valuation multiples near recent highs."

Related Link: Baird Initiates Coverage On RingCentral At Neutral, Sees 7% Upside

Listing the positives, the brokerage estimates $1.5 trillion was spent on communication services alone of the total IT spend of $3.5 trillion in last year. Baird quoted Infonetics data, which suggest Unified Communications as a Service (UCaaS) offered a potential of $50–$75 billion with less than 5 percent penetration.

The lead analyst believes adopters of UCaaS stand to gain a strong ROI through converged opportunities, data analytics and efficiencies. They also see the mid-market growing at a rapid pace as the adoption rate is quicker. The sector could witness accelerated growth as more enterprises are moving toward UCaaS.

On the negative side, the brokerage pointed out limited profitability, competition

At Time Of Writing...

• RingCentral was trading at $22.31, down 0.58 percent on the day.
• 8X8 was trading at $13.36, down 1.19 percent on the day.

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