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Acme Packet and LinkedIn: Should Investors Approach or Avoid?

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Select techs had quite a run in 2012, but the question is whether they will keep their momentum or take a breather in 2013.

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Shares of Acme Packet (NASDAQ:APKT) jumped nearly 12% on heavy volume in one session in early January thanks to a Stifel Nicolaus upgrade to Buy with a price target of $27.

The firm thinks carriers are finally starting to firm up the timing of their Voice-over-LTE (VoLTE) projects, which is a big positive for Acme Packet. With new rollouts from Tier-1 carriers in the US expected to start in the second half of the year, Acme Packet could see strong order momentum beginning in the first half.

Stifel Nicolaus says its checks indicate that AT&T (NYSE:T) will begin testing its VoLTE network in Q2, with a consumer debut likely in the second half. The firm thinks AT&T has already deployed some Acme Packet SBCs for its initial rollout, and that additional orders are likely to come in over the near term.

Stifel Nicolaus says it expects AT&T to be "incrementally stronger" as a customer over the next three to six months, and looks for Verizon (NYSE:VZ) orders to ramp up ahead of a VoLTE launch in Q3 or Q4 of this year. Acme Packet has 27 VoLTE projects in its pipeline, with committed launch dates for 11 to 13 of these deployments, according to Stifel Nicolaus.

The trade association GSA says there are now 105 commercial LTE networks in 48 countries and 194 LTE network deployments in progress, indicating the move to VoLTE is taking shape, albeit a little later than expected. After a tough 2012, Acme Packet should begin to benefit from this momentum over the next several quarters.

Stifel Nicolaus says leverage in Acme Packet's model will allow earnings to improve faster than revenue. The firm estimates that if top-line growth this year were to accelerate to 20% from the current consensus estimate of 9.6%, per-share earnings could reach 65 cents to 70 cents, well above the current consensus of 52 cents.

For now, Stifel Nicolaus raises its 2013 revenue estimate to $303 million (projected growth of 11.2%), against the consensus of $298.5 million. If upside momentum exiting 2013 is particularly strong, the firm thinks 2014 earnings could possibly top $1.00 a share.

Meanwhile, LinkedIn (NYSE:LNKD) needs to keep the growth momentum going in the year ahead or face the possibility of some tough margin compression. The stock trades at 157 times the 2012 consensus EPS estimate of 72 cents and 88 times the 2013 consensus of $1.28. Earnings growth in 2013 is expected to decelerate to 77% from 105% last year.

Continuing to expand its enterprise customer base will be a significant goal for 2013 because this drives the company deeper into the workplace, making LinkedIn more of an essential tool for recruiting and less of a simple social network. While still robust, revenue growth this year is expected to decelerate to 51.9% from 81.5% in 2012. LinkedIn trades at 8.4 times the 2013 revenue estimate of $1.44 billion.

Barclays Capital in early January downgraded LinkedIn to Equal Weight based on valuation, while maintaining its $125 price target. Barclays remains long-term positive on the company, saying LinkedIn has significant runway to expand its advertising and recruiting units, along with the potential to add new revenue streams.

But the firm says the bullish outlook is largely factored into the current price, and thinks the 2013 consensus revenue estimate could be a little too high and subject to downward revisions if LinkedIn management issues conservative guidance.

Editor's Note: This article was written by Rob DeFrancesco of Tech Stock Prospector.

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No positions in stocks mentioned.
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