Buy RingCentral Stock Because Its Deal With Avaya Could Add $82 a Share, Analyst Says

RingCentral stock has extended its rally, gaining Monday after J.P. Morgan analyst Sterling Auty upped his rating on the cloud-based communications services company to Overweight from Neutral, with a new price target of $225, up from $143.

Late last week, RingCentral (ticker: RNG) announced a complex new partnership with Avaya Holdings (AVYA) under which Avaya will resell RingCentral’s services under the name Avaya Cloud Office by RingCentral. As part of the deal, Ring will take a 6% stake in Avaya, and Avaya will hold a 3% stake in Ring.

As we noted on Friday, the deal solves big issues for both companies. For Avaya, the company now has a credible cloud-based communications offering to stem the continued erosion of its old-school hardware-based communications systems business. For Ring, the deal gives the company a big boost in its quest to reach enterprise-class customers.

In a research note, J.P. Morgan’s Auty writes that the deal “opens up an opportunity to dramatically accelerate the shift to cloud-based [unified communications as a service], with Ring being brought into the Avaya customer base.” He estimates that penetrating as little as 3%-5% of Avaya’s customer base of 100 million plus desktops is worth an incremental $82 per RingCentral share. more

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