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Acme Packet: an ADTRAN Derivative Trade?

Shares of network equipment provider Acme Packet hit another 52-week high, defying calls for investors to book healthy 2010 profits yet again.



) --

Acme Packet


can't stop hitting 52-week high share prices, even though the time to take profits on the stock, according to quick hit technology investors, has already passed...several times.

On Wednesday, the latest action in shares of IP network equipment provider Acme Packet could be tied to the earnings beat provided by



, and the general rally in technology after



provided an early earnings season boost.

In the latest defiance of Acme Packet profit-taking cues, the tech stock surged by 6%, or $1.80, to a share price just under $32 in the early afternoon on Wednesday. Intraday, Acme Packet hit another in a series of 2010 52-week highs on Wednesday, trading above $32.Trading in Acme Packet shares was near twice its average daily volume of one million shares.

Acme Packet shares were rallying to a similar level as ADTRAN shares, which were up 7% on Wednesday. The the two network equipment stocks had among the market's biggest gains on Wednesday.

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If the latest Acme rally is a derivative trade on the ADTRAN's earnings outperformance and the general technology stock rally, at least one analyst who covers Acme Packet thinks the recent trading action is overheated.

Richard Valera, analyst at Needham & Co., said that ADTRAN and Acme Packet serve the same technology end customer, but that's where the similarity between the two companies ends.

"It was a very strong report from ADTRAN, and the end market is broadly similar, but they don't sell similar products. Frankly, to conclude Acme will have a blowout quarter because ADTRAN had a good one is a stretch," Valera said.

Acme Packet shares were trading at $11 at the beginning of 2010, and doubled in value ahead of its first quarter earnings at the end of April. Some market watchers thought it was time to take profits ahead of the first quarter earnings. However, after a first quarter earnings beat, Acme Packet shares spiked by another $7, to a share price above $27 in early May.

Acme Packet shares had hovered in the range of $26 to $27 after the first quarter report, until they began another climb in the past seven days, starting on July 6, and ahead of the July 29 earnings.

Acme Packet outperformed Street expectations in the fourth quarter and the first quarter of 2010 - when it reported earnings of 16 cents per share versus a Street consensus of 10 cents - so expectations for a big quarter have been baked into Acme Packet's shares price already.

The Needham analyst noted that Acme Packet reached his price target of $32 on Wednesday. Even after its recent gains, the analyst saw upside in the stock, but with Wednesday's gains, the game is afoot again to measure upside expectations for Acme Packet.

"It's a little confusing. I'm withholding judgment because Acme Packet has shown the ability to outperform what looked like strong stock run ups when people were calling a 'time to take profits' and it turned out not to be the case," Valera said.

However, the Needham analyst cautioned that with Wednesday's latest 52-week high in Acme Packet shares, there is the potential for in-line earnings to be a negative headline. "If they report an in line quarter, then we can say the stock was overheated. At these levels, no one should be buying the stock if they expect a close to in line quarter," the analyst said.

For investors already in Acme Packet shares then, the question hasn't changed: with the latest 52-week high, is the time period right before second quarter earnings the right time to book a gain, or will Acme Packet continue to defy earnings expectations?

-- Written by Eric Rosenbaum from New York.

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