Earning Scorecard: Polycom

Polycom Inc. ( PLCM - Analyst Report ) reported outstanding financial results in the fourth quarter of 2011, mainly driven by growth in the company’s RealPresence software businesses.

Fourth Quarter Highlights

GAAP net income in the fourth quarter was $49.6 million or 28 cents per share compared with $33.1 million or 19 cents per share in the prior-year quarter. However, adjusted (excluding special items) EPS in the reported quarter was 31 cents, way ahead of the Zacks Consensus Estimate of 21 cents.

Total revenue in the fourth quarter of 2011 was approximately $407 million, up 20% year over year and surpassed the Zacks Consensus Estimate of $402 million. The year-over-year increase in revenue was mainly due to growing sales in the international markets.

Gross margin in the reported quarter was 60% compared with 59.8% in the year-ago quarter. Quarterly operating margin was 10.8% compared with 10.5% in the year-ago quarter.

Agreements of Analysts

Of the eight analysts covering the stock in the last 7 days, none revised their estimates for the first and second quarter of 2012.

Likewise, for fiscal 2012, out of the eight analysts covering the stock in the last 7 days, none increased or decreased the estimates. Similarly, for fiscal 2012, out of the six analysts covering the stock in the last 7 days, none revised their estimates for the given period.

The current Zacks Consensus EPS Estimate for the first quarter of 2012 stands at 23 cents. The projected annual growth rate is 22.30%. Similarly, for the second quarter of 2012, the current Zacks Consensus EPS Estimate of 24 cents indicates a year-over-year gain of 25.66%.

Magnitude of Estimate Revisions

For the first and second quarter of 2012, the current Zacks Consensus Estimates remained unchanged at 23 and 24 cents, respectively, over the last 7 days. Likewise, for fiscal 2012 and 2013, the current Zacks Consensus Estimates remained flat at $1.01 and $1.21 per share, respectively, in the last 7 days.

Earning Surprises

With respect to earnings surprises, the company has produced an average earnings surprise of 0.83% over the trailing four quarters. In the last quarter, Polycom reported EPS of 23 cents, which was in line with the Zacks Consensus Estimate.The ongoing quarter and the second quarter of 2012 contains an upside potential of (essentially a proxy for future earnings surprises) 0.00%. Similarly, fiscal 2012 reflects growth potential of 0.00% while 2013 contains a upside potential of 0.83%.

Our Recommendation

Polycom is well positioned financially to pursue its future ventures. Increased demand for video-conferencing services, mainly from India and China coupled with overall improvement of marketing and sales service will boost the company’s market share. Moreover, its recent partnership with International Business Machines ( IBM - Analyst Report ) will further boost the company’s top-line growth. The company is currently foraying into the retail consumer market by developing video conferencing application for smartphones and tablets, which we believe will create huge growth opportunityfor the company going forward. We, thus, maintain our long-term Outperform recommendation for Polycom, Inc.

Currently, Polycom, Inc.has a Zacks #2 Rank, implying a short-term Buy rating.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/