Canaccord Reiterates Buy on Nuance Communications on Possible Bottom in Growth Declines
In a report published Tuesday, Canaccord Genuity analyst Richard Davis reiterated a Buy rating and $22.00 price target on Nuance Communications (NASDAQ: NUAN [FREE Stock Trend Analysis]).
In the report, Canaccord Genuity noted, “As cathartic as it would be to scream and downgrade NUAN shares on what we have been telling investors would be a middling quarter, the fact is that we strongly believe this would be a classic sell-side move – to downgrade at the bottom. We believe NUAN will look like CTCT 12-18 months from now – which means that epic despondency will reverse to at least reluctant admission that the firm has value. For those investors who are able to own stocks on that duration, we believe NUAN shares are worth retaining if not adding to as the consensus panics.”
Bull Market report very similar.
Taken at face value, Nuance's FY2014 and FY Q1 guidance looks horrible, but the shift to a recurring-revenue model and increased R&D spending skews the outlook. Meanwhile, companies like Adobe (ADBE, $56.85, -0.10) and Autodesk (ADSK, $45.29, -0.10) that have been going through similar business model transitions have been rewarded by investors. In general, companies with recurring revenue business models command higher multiples and are considered more desirable by investors. Similar to the two aforementioned companies, Nuance is also the leader in its field, which in its case is speech interface technology.
We think that as investors catch on to the business-model transition that the stock should see a rebound in 2014. And if it doesn‚t, we think Icahn can push for a number of alternatives to unlock value at the company, including splitting it up or putting it up for sale. Thus, this gives investors in this beaten-down stock multiple ways to win.
We're going to start Nuance with a "Buy" rating and $22 price target, with a "high" risk rating. As always, we recommend investors look to use a multi-buy, dollar-cost average strategy when establishing positions if possible.