The stock story is slightly complicated by the fact that Nuance Wednesday announced pricing of $220 million of 2.75% senior convertible debentures, set to close on August 13, to help pay for some acquisitions the company has made — an increase from a planned $150 million offering announced Tuesday.
That caused Richard Davis with Needham & Co. to issue an intra-day note Wednesday following his initial upgrade on the stock from Hold to Buy Wednesday morning. In the first note, Davis said the better-than-expected quarter, and his resultant estimate revision on the company’s outlook, provided the “the entry point” he’d been looking for in the stock. In the second note, he says the offering of convertibles should add 1 penny to earnings per share for the September, 2008-ending fiscal year, for a total of 79 cents per share, which is on top of the big estimate hike he provided Wednesday morning, from an original estimate of 66 cents. Davis thinks the shares are worth $19 in 12 months, based on an estimate of fully-taxed non-GAAP (”cash”) earnings per share of 54 cents. He notes the company should have 32% earnings growth this year and 45% next year. Davis also goes into some arguments from the shorts and attempts to counter them. The main point is that Nuance bought out the speech technology business of Lernout & Hauspie from bankruptcy some time back, and that kind of “roll-up” strategy “always crumbles,” goes the argument. Davis says Nuance is not like Lernout, with none of the management eccentricities that got L&H into bankruptcy, but rather a disciplined, “results-oriented” culture. And he says that Nuance has shown since 2005 that it can deliver when it promises “Synergies” from the acquisitions it makes. Meantime, upgrading Nuance from Market Perform to Outperform, Friedman, Billings, Ramsey’s software analyst Daniel Ives declares he’s “boarding the Nuance shuttle again,” with the stock down 12% since early June. Ives’ main concerns about the stock, the risk of integration woes with its various acquisitions, and the debentures offering, are now in the rear-view mirror, and there’s plenty of opportunity in the speech technology market, which he describes as “fertile.” He says some investors may be underwhelmed with the company’s forecast Tuesday for 17% to 18% sales growth, but he thinks it’s “impressive,” and like Davis, he’s raising his estimate for the Sept. ‘08 year by about 16% to an $865 million in sales. He’s also raising his price target on the stock from $19 to $20, which he pegs as a 26x multiple of next year’s estimated 78 cents per share.