In a research report published Friday, Canaccord Genuity analyst Richard Davis reiterated a Buy rating on Nuance Communications Inc. (NASDAQ:NUAN) with a price target of $18.00, after the company released its fiscal second-quarter earnings results and held a conference call last evening to provide a corporate update.
Davis wrote, “These days, an interesting software stock has either fast growth and low profits or slow growth and high margins (fast growth and high profits are unicorns). Nuance is getting the slow growth part right, and for this quarter at least, the firm generated 25% operating cash flow margins. We had assumed that Icahn would be a spark for structural changes, but this has not yet happened.”
The analyst continued, “The problem is that if Nuance really is about to become a no growth, cash flow machine, a 10x multiple on this quarter’s annualized operating cash flow roughly gets you to the current stock price. Therefore, we will assess whether Nuance will resume growth or become more of a cash flow story. Nuance remains a BUY, but we alert investors that without a reacceleration of organic growth or structural change, we would likely reconsider our rating.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Richard Davis has a total average return of 6.0% and a 58.1% success rate. Davis has a -3.7% average return when recommending NUAN, and is ranked #454 out of 3596 analysts.