Polycom shares fall on valuation concerns

PHILADELPHIA

Shares of Polycom Inc., a maker of video conferencing systems, fell Thursday after an analyst said the company's business growth wasn't strong enough to merit its lofty stock price.

They fell $2.13, or 6.4 percent, to $31.01 in afternoon trading.

Raymond James analyst Todd Koffman downgraded Polycom, based in Pleasanton, Calif., from "Outperform" to "Market Perform," which means investors should expect the stock to perform in line with the S&P 500 over the next 12 months.

Koffman noted that Polycom has lowered its 2010 forecast for margins, which affects profits, and expects a recovery in earnings toward the end of the year. He said in a research note that Polycom's revenue growth in the mid-teen percentages, weaker margins and inconsistency in operational performance didn't justify its stock price.

Koffman said Polycom is trading at a value comparable to what Cisco Systems Inc. paid for Tandberg, a Polycom rival. But Tandberg is growing faster and has better margins.

It's notable that Cisco wanted to buy Tandberg and not Polycom, he said. Polycom has a "mature, slow-growth" voice conferencing business that produces 30 percent of its revenue.

Polycom also faces significant new competition from a combined Cisco and Tandberg, he said.

Koffman said he's encouraged by Polycom's new slate of managers and a reorganization, though such an endeavor carries risk.