Nuance (NUAN) Slides After Missing Earnings Forecasts

Shares of Nuance Communications (NUAN: Charts, News) slid 20% this week after the company, which specializes in speech-to-text recognition software, slightly missed earnings forecasts and announced weaker than expected guidance for the full year.

The Burlington, Massachusetts-based company offers its software to a variety of industries, including automated telephone services, medical services and desktop imaging services. However, the company's claim to fame is the creation of Apple's (AAPL: Charts, News) Siri service, which was introduced in the iPhone 4S. Daily Chart
Nuance posted first quarter earnings of 35 cents per share on revenue of $492.4 million. Earnings missed estimates by a cent, while revenue met expectations. However, it wasn't the company's minor miss that triggered the slide that erased a fifth of its market cap. It was its bleak forward guidance for the second quarter and the rest of fiscal 2013. For the next quarter, Nuance expects to earn 35 to 40 cents per share on revenue of $500 million to $553 million. While this tops the analyst forecast for $524 million in revenue, it misses the earnings expectations of 44 cents per share. Nuance reduced its full year guidance from a range between $1.84 to $1.94 per share down to a range between $1.76 to $1.87 per share. Analysts had been expecting earnings of $1.89 per share. This would only represent 5% to 8% bottom line growth from 2012, which is lackluster at best. Although the company didn't revise its full year revenue forecast from $2.15 billion to $2.20 billion - which matches the consensus estimate of $2.2 billion - several analysts now expect a top line miss later this year. Nuance operates in four main business segments - health care, mobile & consumer products, enterprise and imaging. Its health care segment is the largest, accounting for 49.6% of its total revenue. Nuance's mobile segment accounts for 21.4%, while enterprise and imaging generate 10.4% and 13.7%, respectively. Nuance's mobile division is unlikely to grow much more, since smartphone market leaders Apple and Samsung are already its primary customers. Its dominant position could also be threatened by AT&T's (T: Charts, News) Watson voice-recognition system, which is an open-sourced, crowd-sourced alternative to Nuance's closed-ended software. Speech to text software has become increasingly popular on handsets and tablets, ever since Apple introduced Siri. Over the past twelve months, Nuance's stock metrics have been all over the map, making it a difficult stock to analyze. Revenue grew 21.16%, while diluted EPS soared 364.3%. This can be attributed to a 63.65% increase in operating margins. Meanwhile, its cash reserves declined 100% and its long-term debt rose 63.65%. The company has $961.09 million in cash, but is shouldering $2.33 billion in debt, giving it a debt-to-equity ratio of 83.92. Rising debt, slower top and bottom line growth, and the questionable sustainability of its closed-ended business model have all raised red flags with investors. Shares of Nuance trade at 9.52 times forward earnings, with a 5-year PEG ratio of 0.66. The stock does not pay a dividend, and is down 26% over the past twelve months. Other News About NUAN Nuance Communications: Apple Supplier Offering Great Entry Point After Sell-Off Is Nuance finally a value tech stock? Is Nuance Communications a Bargain Here? Should investors take a risk and buy Nuance Communications at these depressed prices? Other Stocks in the News Four Reasons Why Apple Should Buy Nokia Can Apple solve all its problems by taking over Nokia? Is LinkedIn a Bubble or a Buy? Can LinkedIn ever justify its high multiple? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Feb 12, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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