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The Nuance Communications Turnaround Story Is Growing More Convincing, Says Morgan Stanley

The Nuance Communications Turnaround Story Is Growing More Convincing, Says Morgan Stanley

Morgan Stanley upgraded shares of Nuance Communications Inc. (NASDAQ: NUAN) Thursday with projections of a return to positive growth by the company.

Analyst Sanjhit Singh upgraded shares of Nuance Communications from Equal-Weight to Overweight, with a $18 price target.

At the time of writing, shares of the company were rallying 3.25 percent to $15.23.

Based on conversations with hospital executives, management and analysis of company's key business segments, analyst Singh said organic revenue growth would accelerate from a 1-percent drop in 2017 to positive 3-, 6 and 4-percent growth, respectively, in 2018, 2019 and 2020. (See Singh's track record here.) 

Three factors — secular growth reaching sufficient scale, mature segments becoming less of a drag on growth and the unlikelihood of the recent malware attack having a long-lasting impact — are driving the acceleration, he said. 

The adoption of Dragon Medical Cloud will likely accelerate due to the recent malware attack, which has driven customers away from legacy transcription services and toward software-based solutions, Singh said. 

Nuance's capabilities in conversation, artificial intelligence and natural language processing are solidifying its presence in the virtual assistant market, thereby supporting growth in its automotive and enterprise businesses, according to Morgan Stanley. 

The June 27 malware attack, which significantly disrupted operations in Nuance's health care business, will hurt in the near-term, Singh said. Major share losses to competitors such as MModal and 3M Co (NYSE: MMM) are unlikely in the longer term, the analyst said. 

"In summary, we see YoY dollar growth contribution from Nuance's growth portfolio ... surpassing the YoY declines in the legacy healthcare transcription business, Dragon Medical license business and the mobile handset business" with Apple Inc. (NASDAQ: AAPL)'s Siri, Singh said. 

The sustained growth in net-new bookings over the past three years will translate into revenue in 2017, 2018 and beyond, according to Morgan Stanley. 

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Latest Ratings for NUAN

Jan 2021Morgan StanleyMaintainsOverweight
Jan 2021WedbushMaintainsOutperform
Dec 2020SVB LeerinkMaintainsOutperform

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Posted-In: Keith Weiss Morgan Stanley Nuance Communications Sanjit SinghAnalyst Color Upgrades Analyst Ratings Tech Best of Benzinga

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