PRIMECAP Management (Trades, Portfolio) has reduced its stake in Nuance Communications (NUAN, Financial). PRIMECAP Management (Trades, Portfolio) is a fundamental value fund manager with a focus on investments over a three to five year time horizon. It currently has equity assets under management of approximately $103 billion.
On July 31 the investment manager sold a large portion of its portfolio shares in Nuance Communications. Reducing its portfolio position in the stock by 6.07%, PRIMECAP sold 960,652 shares. In a previous sale on May 31, PRIMECAP also reduced its position in Nuance Communications by 70,900 shares. As of July 31 the PRIMECAP portfolio has a current weighting in Nuance Communications of 0.26% at 14,865,440 shares.
On August 6 Nuance Communications reported its third quarter earnings results. For the quarter the company reported total revenue of $489 million. Revenue was up slightly from the comparable quarter increasing 0.38%. Net income for the quarter was $101 million resulting in earnings per share of $0.32. The company’s earnings results beat analysts’ expectations for the quarter. Revenue was $8.34 million above analysts’ expectations and earnings per share beat by $0.03.
While revenue growth for the company has been strong in previous quarters the company’s year-to-date bookings rate appears to signal slower revenue growth ahead for future quarters. In the third quarter Nuance reported total net new bookings of $484 million bringing the year-to-date bookings to $1.1 billion. At $1.1 billion year-to-date bookings are only up 2% from the third quarter of 2014.
Organic revenue growth for the company was also down in the third quarter. Total organic revenue was 3% less than the comparable quarter with organic revenue growth down in nearly every business segment.
| Revenue ($M) | Q3 2015 |
| Healthcare | $236.80 |
| Organic growth* | -1% |
| Mobile & consumer | $108.50 |
| Organic growth* | -5% |
| Enterprise | $87.00 |
| Organic growth* | 0% |
| Imaging | $56.30 |
| Organic growth* | -8% |
| Total revenue | $488.70 |
| Organic growth* | -3% |
| Source: Q3 2015 Earnings Report | |
| *Compared to Q3 2014 | |
In the trading day following the company’s earnings announcement the stock is up 4.03% to $18.67. At $18.67 the stock appears to be trading slightly above its fair value of $18.01. Analysts currently have an average target price estimate for the stock of $19.88. In future quarters investors should watch for bookings growth from current and new customers as well as product innovation for capturing increased market share.
