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As you might know, Cerence Inc. (NASDAQ:CRNC) just kicked off its latest quarterly results with some very strong numbers. The company beat both earnings and revenue forecasts, with revenue of US$95m, some 8.0% above estimates, and statutory earnings per share (EPS) coming in at US$0.54, 200% ahead of expectations. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the latest results, Cerence's ten analysts are now forecasting revenues of US$381.8m in 2021. This would be a decent 10.0% improvement in sales compared to the last 12 months. Per-share earnings are expected to surge 172% to US$0.95. In the lead-up to this report, the analysts had been modelling revenues of US$377.6m and earnings per share (EPS) of US$0.63 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the massive increase in earnings per share expectations following these results.
The consensus price target rose 16% to US$126, suggesting that higher earnings estimates flow through to the stock's valuation as well. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Cerence analyst has a price target of US$150 per share, while the most pessimistic values it at US$105. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that Cerence's revenue growth is expected to slow, with forecast 10.0% increase next year well below the historical 13% growth over the last year. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 14% next year. Factoring in the forecast slowdown in growth, it seems obvious that Cerence is also expected to grow slower than other industry participants.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Cerence's earnings potential next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on Cerence. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Cerence going out to 2024, and you can see them free on our platform here..
It is also worth noting that we have found 5 warning signs for Cerence that you need to take into consideration.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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