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

The comments come on the heels of Gartner naming RingCentral as a leader in its Magic Quadrant for Unified Communications as a service (UCaaS) for the year 2016. This was based on its capacity to execute and complete the vision.

In a research note to clients, the lead analyst said, "We are positive on the UCaaS growth opportunity, which we believe remains early innings, as well as RNG's positioning. However, with the stock near recent peaks and expectations high, we are initiating coverage with a Neutral rating and $24 target price, and would look for any weakness to perhaps become more aggressive."

Related Link: RingCentral Names David Sipes As COO

The brokerage listed positives such as big market opportunity of $50+ billion, strong revenue growth of 33.9 percent recorded in the second quarter, software subscription revenue growing at a pace of 33.6 percent and capacity to scale its margins over a period of time. Aside from these, the market penetration is less than 10 percent and, as one of the stand-alone UCaaS leaders, the company is firmly placed.

On the flip side, Baird listed high expectations from investors, growing competition, entry of Microsoft Corporation MSFT and Cisco Systems, Inc. CSCO and the valuation at a near higher end of the historical range.

At time of writing, RingCentral was seen trading at $22.67, up 1.02 percent on Friday.

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