Nuance's Long Term Growth Story

Includes: DSPG, F, GOOG, NUAN
by: Mark Riddix

I picked up shares of Nuance Communications (NASDAQ:NUAN) at $16.70. Nuance Communication is a computer software company that specializes in developing voice recognition applications. Nuance has been investing heavily in mobile voice technology. It recently struck a deal with Ford (NYSE:F) to offer its voice command software in Ford vehicles. Nuance also recently purchased SpinVox’s potentially lucrative voicemail to text service for 102 million dollars. Nuance offers its voice enabled applications on Apple's (NASDAQ:AAPL) iPhone and iPod through its Dragon Dictation and Dragon Search software.

On CNBC, David Kestenbaum, director of equity research and managing director of Morgan Joseph, said he believes that Nuance is solidly positioned for growth. Kestenbaum stated that

Hospitals will be able to use it for health care to cut costs. On the mobile side, there’s real opportunity because some states may pass regulations against texting, so we think voice recognition becomes even more compelling.

I like the long term growth story for the voice recognition provider. Since 2005 the company has grown EPS from .22 per share to $1.03 per share. Nuance has grown EPS over 40% the last five years and has a projected long term EPS growth of 17.5%. The forward P/E for 2010 is 13.1, which is very reasonable for a tech company in the computer software industry. The 2010 average EPS estimate $1.27. Price to Earnings Growth is 0.8.

Nuance’s main competitor is Google Voice (NASDAQ:GOOG) which is certainly a formidable foe. But Nuance should perform well if the company sticks to its operating plan. Nuance’s core customers are the mobile phone carriers whereas Google Voice is focused on offering its services directly to consumers. Google Voice is more of a threat to landline phone companies than to Nuance.