Nuance Shares Jump Over 15% as Analysts Upgrade Target Prices Post Earnings Beat
Nuance Communications’ shares skyrocketed by more than 15% on Thursday after several analysts raised price targets on the computer software technology corporation after it beat estimates in the quarter ended September.
The leading provider of voice recognition and imaging software technology said its earnings per share decreased over 45% to $0.18, but it was successful to beat the Wall Street estimate of $0.16. Revenue of $352.9 million declined by 25.01% year over year, but again beat the estimate of $345.7 million.
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“Healthcare ARR growth of 29% combined with a multiyear outlook calling for accelerating growth in FY21 and a 30-40% CAGR thru FY23 all while improving margins by 400 bps makes Nuance a distinctive asset in software given a business transformation that is hitting its stride,” said Sanjit Singh, equity analyst at Morgan Stanley.
“While our near-term revenue and EPS estimates move down given the sale of the HIM transcription and EHR services businesses, the sale of these low-growth, low-margin businesses makes the longer-term growth and margin profile of the business much more attractive. For instance, our CY21-CY23 EPS CAGR moves up to 22% from 14% previously. As such, we apply a higher multiple (~40x, from ~31x previously) to our updated CY22e EPS estimate of $1.01 (down from $1.11 previously), which moves our price target up to $41 from $35,” Singh added.
Nuance Communications shares jumped over 15% to $39.0 on Thursday; the stock is up about 120% so far this year.
Nuance Communications Stock Price Forecast
Seven equity analysts forecast the average price in 12 months at $41.43 with a high forecast of $47.00 and a low forecast of $34.00. The average price target represents a 5.80% increase from the last price of $39.16. From those seven analysts, six rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $41 with a high of $51 under a bull-case scenario and $19 under the worst-case scenario. The firm currently has an “Overweight” rating on the software technology corporation’s stock.
Several other analysts have also upgraded their stock outlook. Oppenheimer raised their stock price forecast to $40 from $36; Craig-Hallum upped their target price to $41 from $36; Wedbush increased the price objective to $45 from $40; Stifel raised the price target to $34 from $26 and SVB Leerink upped the price target to $42 from $38.
We think it is good to buy at the current level and target $47 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.
Analyst Comments
“Nuance has undergone a comprehensive rationalization of its product portfolio. Out of this process emerges a leaner, more focused organization that is better suited to grow into its most defensible opportunities,” said Sanjit Singh, equity analyst at Morgan Stanley.
“As a result of the more focused investment, an ongoing cloud transition that carries highly attractive unit economics with significant revenue uplift potential and an upcoming product cycle with DAX, we see annualized revenue growth accelerating to 11% in FY20-FY23 compared to the 1.6% CAGR seen in the FY16-FY19 time frame,” Singh added.
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