Cerence Inc. CRNC shares surged on Wednesday after Needham analyst Nick Doyle upgraded the stock from Hold to Buy with a price target of $16.
The analyst is bullish on the stock as he expects LLM-based voice assistants to drive higher price per unit (PPU), aligning with automakers’ push for cost efficiency while preserving premium branding.
The analyst writes that strong management, prudent debt actions, improved cash flow assumptions from deferred revenue, rising PPU confidence, a normalized fixed contract balance by December 2026, and conservative near-term operating expense estimates provide confidence in the stock.
The analyst is confident that new CEO Brian Krzanich, with his extensive experience, vision, and industry connections, will transform Cerence’s Voice Assistant from a desirable option to an essential tool.
The analyst’s FY25/26 OpEx estimates remain unchanged, with projected growth at about half the revenue rate in FY27.
Meanwhile, Doyle increased the FY26 ASP estimate to $3.58 from $3.38.
While the upgrade is not directly tied to the NVIDIA partnership extension, the analyst sees near-term software enhancements and a unique long-term go-to-market opportunity with edge LLMs.
Doyle anticipates a $20 million revenue boost in FY27 as the ‘Fixed Contract Balance’ headwind dissipates.
The analyst estimates the balance at ~$43 million at the end of fourth-quarter FY24, with CRNC likely to reduce it by ~$20 million annually in FY25 and FY26, eliminating the headwind by the first quarter of FY27.
The company plans to announce first quarter results on February 6, 2025.
Price Action: CRNC shares are up 6.88% at $14.60 at the last check Wednesday.
Image via Shutterstock.
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