Nuance (NUAN) is a story about a software company that has finally begun to find its groove after more than a decade of wallowing in the mud. The company was an early pioneer in voice recognition technologies, explains Tyler Laundon, editor of Cabot Small-Cap Confidential.
Today, Nuance develops conversational AI solutions that can understand, analyze and respond to human language. The stock’s current strong performance follows a 2019 reorganization that has made Nuance a leaner and meaner AI and machine learning company.
The transition focused on five things; (1) spin-off of the auto business, (2) sell the imaging business, (3) wind down mobile consumer solutions, (4) cost saving initiatives and (5) debt paydown and/or share repurchases.
Nuance is completely focused on its two strongest markets – Healthcare Solutions and Enterprise Solutions – as well as migrating to the cloud, new product development and international expansion.
The Healthcare segment includes clinical speech and language understanding solutions, which help clinicians, radiologists and care teams accurately capture clinical information. Intelligence solutions can improve decision-making across the continuum of care.
MoneyShow’s Top 100 Stocks for 2021
The top performing newsletter advisors and analyst are back, and they just released their best stock ideas for 2021. Get your FREE copy of MoneyShow’s 2021 Top Picks report here and see why the nation's leading investment experts believe these stocks will significantly outperform the market in 2021.
Examples of everyday use cases include collecting patient records, processing reimbursements and sharing previous procedure notes. Demand is driven by compliance risk, financial pressures, risk of clinician burnout and the pursuit of better experiences for patients.
The best-known solution in this market is Dragon Medical Cloud, which is used by over 550,000 physicians daily and accounts for roughly 86% of segment revenue. Roughly 90% of hospitals and 80% of radiologists rely on Nuance Healthcare solutions daily.
The Enterprise segment offers intelligent engagement solutions that help companies communicate with customers. As in the Healthcare segment, these solutions are grounded in speech and language understanding, but they’re deployed across voice, mobile, web and messaging channels.
A prime example is a targeted text message regarding a new product offering for an existing customer, followed by automated customer care guidance to help the individual purchase the new product.
Nuance’s Enterprise solutions are used by 85% of the Fortune 100, including 19 of the top 20 financial organizations and the top 10 telecommunications providers outside of China.
Recently, management has struck a positive tone as business in hospitals is improving, Dragon Medical is now over 60% migrated to the cloud, and management sees a successful rollout of new solutions, including Dragon Ambient Experience (DAX), an ambient clinical intelligence solution.
Look for revenue to be down around 8% this year (remember the spin out and pandemic are big 2020 headwinds) then expand 7% in 2021 and accelerate toward 10% growth thereafter.
Nuance is profitable now and should deliver adjusted EPS of around $0.76 this year, then grow profits slightly faster than revenue. The company has a market cap of just over $12 billion.
The stock — a more conservative pick for 2021 —has been trading since 1995 but spent most of the last eight years trading in the 11 to 18 range. The trend began to improve when the reorganization was announced in 2019.
The 2020 market crash hurt, but NUAN jumped back to its pre-pandemic high of $23.5 in June. Since then it’s been blazing higher, showcasing a pattern of higher lows and higher highs.
