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Why Nuance Communications Stock Climbed 13.3% Last Month

By Keith Noonan – Jun 8, 2020 at 11:34AM

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The AI company posted better-than-expected quarterly results, and its stock is now up roughly 26% year to date.

What happened

Shares of Nuance Communications (NUAN) gained 13.3% in May, according to data from S&P Global Market Intelligence. The stock rose following the publication of the company's second-quarter results, and it benefited from momentum for the broader market as the month progressed.

^SPX Chart

^SPX data by YCharts.

Nuance published second-quarter results on May 7, topping the market's expectations. The company posted adjusted earnings per share of $0.21 on sales of $369.5 million. The average analyst estimate had called for EPS of $0.17 on revenue of $351.56 million.

A doctor holding a mobile phone.

Image source: Getty Images.

So what

Nuance reported 46% year-over-year revenue growth for its Dragon Medical cloud platform, with sales from the segment reaching $67.6 million. Management also highlighted momentum for new cloud-based solutions including PowerScribe One and CDE One. Revenue from the company's hosting segment declined roughly 15% year over year to land at $46.2 million.

Nuance also bought back 3.8 million shares and paid down $170 million in debt in the quarter. But management noted that conditions created by the coronavirus were making adding new customers more difficult, and it paired its second-quarter results with lowered full-year targets. 

Now what

Nuance stock has slipped slightly in June's trading. The stock is down roughly 2% in the month so far.

^SPX Chart

^SPX data by YCharts.

In conjunction with its second-quarter report, Nuance updated its full-year performance targets. The company now expects adjusted revenue between $1.405 billion and $1.485 billion, down from its previous target for adjusted sales between $1.495 billion and $1.535 billion. Nuance lowered its growth target for annualized recurring revenue to between 13% and 21% year over year, down from its previous target between 26% and 34%.

Adjusted earnings per share for the year are now projected to be between $0.75 and $0.86, down from the previous target between $0.82 and $0.90. Management had previously targeted annual free cash flow between $250 million and $290 million, but it withdrew the target and opted not to issue new guidance.

Nuance stock trades at roughly 28 times this year's expected earnings and 4.4 times expected sales.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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