Key Takeaways
- RingCentral shares jumped 7% today after third-quarter results beat estimates and the company raised its full-year outlook for revenue, margins, EPS and free cash flow.
- Recurring revenue from customers using a paid AI product doubled from a year earlier and is now close to 15% of RingCentral’s total.
- Morgan Stanley, UBS and Jefferies sharply raised their price targets but kept their neutral ratings.
- Even after the jump, the stock trades below its five-year average forward P/E, so the beat doesn’t look fully priced in.
RingCentral (RNG) is up 7% today on a third-quarter beat, reported after Thursday’s close, and a raised outlook for the year.
Morgan Stanley’s analysts called it RingCentral’s “strongest topline quarter” and more than doubled their price target, to $91 from $41. They also kept their Equal Weight rating.
What exactly happened
Third-quarter revenue grew 5.9% to $676 million, ahead of the $667 million analysts expected, and subscriptions revenue beat the high end of RingCentral’s own guidance. Plus:
- Adjusted EPS of $1.33, up from $1.13 a year ago and ahead of the $1.27 expected
- A record 24.7% adjusted operating margin, up from 22.8%
- Free cash flow of $157 million, up 21%
- Gross debt cut to about $1 billion, reaching management’s target ahead of schedule
The AI push is also starting to show up in the numbers: recurring revenue from customers using a paid AI product doubled from a year earlier and is close to 15% of RingCentral’s total.
The company also raised its full-year outlook across the board, including adjusted EPS of $5.07 to $5.12 and free cash flow of $620 million to $630 million.
TIKR tracks 15 analysts on RingCentral. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on RingCentral, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See RingCentral’s Analyst Ratings
The estimates keep climbing
Analysts expect adjusted EPS of $5.11 this year, near the top of that new range. After that, they expect growth of about 8% in 2027 and 10% in 2028…
And nothing in this quarter’s report points to cuts.
Yet the stock is still cheap against its own history. RingCentral traded at 15x forward earnings at Thursday’s close. Today’s jump takes it closer to 17x, which is still well below its five-year average of 21x.
So how much is priced in?
Less than the ratings suggest. Going into the report, analysts’ average price target was $58. Today’s jump takes the stock past even the highest target, $85…
UBS has now raised its target to $105 from $45, and Jefferies has raised its target to $75 from $40. Both kept neutral ratings. Morgan Stanley’s $91 target is right about where the stock trades now.
My take: Those neutral ratings look too cautious. A company growing earnings about 8% to 10% a year while its AI revenue doubles shouldn’t trade below its usual multiple, and I see more upside from here.
Of course, total revenue is still growing just 6%, so the case depends on AI pushing that higher. Fourth-quarter results, due early next year, will show whether it can.
So what is RingCentral stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what RingCentral could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
