Special delivery to investors from Premiere Global Services (NYSE:PGI): an undervalued growth stock that has the wind beneath its wings. With a bevy of business communications applications and a selling model that makes accessing them easy, Premiere is gliding along in a sector fraught with missed connections.  

The company’s fortunes are tied to its Premiere Global Communications Operating System (PGiCOS), which offers business clients handy access to a number of applications from the Internet. Premiere provides a range of technology to automate and simplify everyday corporate needs including conferencing (both web and audio), document delivery, desktop fax, e-marketing and notifications.

Considering the economic drag on telecommunications, Premiere’s performance has been surprisingly strong. The telecommunications services sector, of which Premiere is a member, was down 15.8% year to date through July 15, 2008. At the same time, Premiere was up 5% on the year. Other telecommunications companies considered peers include AT&T (NYSE:T), down 21%, and Verizon Communications (NYSE:VZ), down 19%.

Founded in 1991 and headquartered in Atlanta, Ga., Premiere’s business may seem mundane but its results are anything but. Its flock of business applications pits it against various competitors depending on need, and provides a competitive advantage compared to single-product vendors. None of Premiere’s rivals has a similarly comprehensive on-demand platform, nor — Premiere says — a similar drive to directly integrate and embed their technologies into a customer’s business processes.

Just as important as the multiple application approach is the way Premiere sells its technologies. Through the PGiCOS platform, Premiere offers an easily accessible Internet portal to sell its business-automation applications. Indeed, the budding success of this model has not yet been fully recognized in the marketplace.

“We believe investors substantially underestimate the proprietary nature of Premiere's service platform,” said Tavis McCourt, analyst at Morgan Keegan and Co., in an April note following Premiere’s first-quarter results. He noted that Premiere develops its own audio conference bridges, web conferencing and other business applications, and bundles this technology on a single Internet platform.

Premiere is more than a "services" company, McCourt says. Instead, it is “rapidly turning into a technology company that happens to sell this technology as a service.” The company is improving internal growth and expanding margins as its customers see the benefits of unifying multiple communications applications on a single outsourced platform.

Premiere is a technology company and a service provider, a bird and a plane. The combination paid off in 2007, when it grew revenues 13% to $560 million, the bulk of which was accounted for by North America, followed by Europe and Asia Pacific. Operating cash flow was up 24%. Net income was $33.4 million, up 31% from $25.5 million in 2006.

Premiere, with a market capitalization of $916 million, also bought back 10 million of its shares — 15% of those outstanding — in the year ended Dec. 31, 2007, and launched PGiConnect.com to bring its capabilities online.

That’s a good year. But things got even better in the first quarter, when earnings per share rose to $0.20 from $0.13 the previous year — a 53% gain. Premiere reiterated guidance for revenues to grow more than 10% this year and earnings at least 20%. For the year, the consensus calls for earnings of $1.08 per share, up 27% from $0.86 in 2007. Revenues are seen at $633.7 million, up 13%. Second-quarter results are expected Monday.

Faced with such lofty 2008 expectations, Premiere’s shares appear undervalued. Current prices near $15 each mean a P/E ratio of 15 based on 2008 forecasts — a modest valuation compared with the 20%-plus earnings growth guidance from the company.
Considering the trembles of the economy, Premiere’s performance and growth outlook are all the more alluring. “Were the economy to weaken further, there is certainly a potential for slower growth this year,” says McCourt. “However, at the current time, PGI appears to be powering through any economic challenges.” McCourt repeated his “outperform/speculative” rating.

Premiere said in its second-quarter SEC filing that it will generate enough operating cash flow for capital expenditures, to pay debt and for other commitments for at least the next 12 months. On March 31, it had $104.2 million of available credit on an existing $375 million credit facility, and $22.8 million of cash and equivalents.

Let’s not clip those wings too soon, though. With a valuation well below expected earnings growth, proven ability to avoid economic turbulence and outperform its peers, and a unique business proposition, Premiere may offer investors a first-class ride.