Analyst Sees Big Upside in Nuance Communications After the Spin-Off

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Nuance Communications Inc. (NASDAQ: NUAN) is planning to spin off its auto business into a new public company, Cerence, which will begin trading on October 1. Ahead of this spin-off, Wedbush met with executives about what to expect when this all goes down.

Coming out of this meeting, Wedbush reiterated an Outperform rating with a $22 price target, implying upside of 29% from the most recent closing price of $17.00. Overall, the boutique investment firm said that it appears Nuance has its arms around the spin-off and there don’t appear to be any speed bumps ahead over the coming quarters as the company navigates this transition.

Considering lingering worries from other analysts heading into the final step on October 1 and possible stranded costs, Wedbush believes the overall strategic vision is on track thus far as Nuance has done a commendable job executing its strategic initiatives and continues to be laser focused on building a global cloud health care and artificial intelligence driven business with sustainable revenue and earnings going forward.

In terms of business conditions, Nuance is seeing continued success penetrating hospitals, radiology departments with its new PowerScribe One solution, as well as migrating CDI customers to the cloud with CDE One, and other health care driven organizations in the field.

In its report, Wedbush detailed:

We note that these two cloud solutions (PowerScribe & CDEone) are gaining significant traction early on in the field and in our opinion should materially contribute to ARR going forward which will be key to the stock moving higher as we head into 2020. In Terms of Dragon Medical we continue to see the cloud transition going smoothly as it is poised to finish 2019 with around 40% US penetration which we note is up from 30% at the start of the year. To this point NUAN is getting closer to becoming more of a pure play ARR healthcare/enterprise portfolio which we believe will result in a re-rating once the Street starts to revisit this “new Nuance” story.

Shares of Nuance Communications traded at $17.06 on Friday, in a 52-week range of $12.67 to $18.16. The consensus price target is $20.50.


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