Needham upgrades RingCentral, citing stabilizing growth, improved cash flow
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RingCentral (NYSE:RNG) shares rose 3% on Friday as Needham upgraded the software company, citing stabilizing growth and improved free cash flow.
Analyst Ryan Koontz raised his rating on RingCentral (RNG) shares to buy from hold, noting that the company has made "surgical" cost cuts and stabilized its growth rates. 
"We now see the company demonstrating its capacity to achieve 20%+ [operating margins] which should provide ample [free cash flow] to pay down its sizable debt load," Koontz wrote. "We estimate ~$300MM/$375MM in [calendar 2024 and 2025 free cash flow] with its new debt instruments as capable of negating total debt in 2026."
Koontz noted that he expects slowing unified-communications-as-a-service growth to allow RingCentral (RNG) to go after "low knowledge worker verticals" where Microsoft's (MSFT) Teams is less prevalent.
"Together with an expanding CCaaS portfolio, we see sustained 10%+ subscription revenue growth as achievable over the medium term," Koontz added. "Fears of declining business lines appear overblown, and the company's early-mover strategy in AI, albeit immature in monetization, provides upside optionality."
Analysts are largely cautious on RingCentral (RNG). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates RNG a HOLD.
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