Morgan Stanley Sees Revenue Growth for BroadSoft, Upgrades to Outperform

In a report published Tuesday, Morgan Stanley analyst Tavis McCourt upgraded

from Market Perform to Outperform and initiated a $24.00 price target following the March quarter earnings report. Management reported worse-than-expected revenue and non-GAAP EPS of $43.9 million and $0.07, respectively. Revenue came in at $400K below Morgan Stanley's estimates and EPS missed by $0.02. Despite disappointing March numbers, McCourt remarked that company maintained full year 2014 estimated and expects solid results in the fourth quarter. The analyst added that the $5.1 million in revenue recognition this quarter from a deal for an APAC service provider was already “baked into” management's full year guidance. McCourt wrote, “Although we believe BroadSoft's customers are largely losing modest share in the hosted IP telephony market (which we believe has caused much of the weakness/choppiness the last ~2 years), we believe the market is still growing nicely, and that over time, although lumpy, the company's licensed software revenue stream should grow modestly. Additionally, with meaningful transition of telecom networks to a software-centric architecture, BroadSoft is positioned well for consolidation, in our opinion. Finally, we believe the company's Sprint VoLTE contract win should limit revenue disruption potential in 2015-2017, and at this valuation, any degree of revenue growth should lead to share outperformance.” Morgan Stanley lowered non-GAAP EPS estimates for 2014 and 2015 from $1.39 and $1.60 to $1.28 and $1.50, respectively. Shares of BroadSoft closed at $20.16 on Monday. The stock is currently up 2.827 percent at $20.73.