Needham & Company says fears of RingCentral declining business overblown By Investing.com

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Needham & Company says fears of RingCentral declining business overblown

Published May 26, 2023 09:21AM ET

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Needham & Company says fears of RingCentral declining business overblown

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RingCentral, Inc. (NYSE:RNG) was upgraded to Buy from Hold at Needham & Company on Friday, with analysts assigning the stock a $42 price target.

The analysts said the firm is upgrading the stock based on a "vastly improved" free cash flow and stabilizing growth.

"We upgrade RNG to Buy after nearly a year on the sidelines in response to surgical cost cuts and stabilized growth," wrote the analysts.

"We now see the company demonstrating its capacity to achieve 20%+ OM which should provide ample FCF to pay down its sizable debt load. We estimate ~$300MM/ $375MM in C24/C25 FCF with its new debt instruments as capable of negating total debt in 2026," they added.

Needham & Company expect "slowing UCaaS growth to focus RNG on low knowledge worker verticals where Teams is less prevalent," while with an expanding CCaaS portfolio, they see sustained 10%+ subscription revenue growth as achievable over the medium term.

"Fears of declining business lines appear overblown, and the company's early-mover strategy in AI, albeit immature in monetization, provides upside optionality. Our $42 PT is based on F24 EV/EBITDA of 10x, still below peers," the analysts concluded.

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