On Thursday, Evercore ISI adjusted its outlook on Cerence Inc . (NASDAQ:CRNC), significantly reducing the technology company's stock price target from $20.00 to $8.00. The firm maintained its In Line rating on the stock. This revision follows Cerence's recent announcement that it has lowered its fiscal year 2024 revenue and EBITDA expectations and has withdrawn its multi-year forecast through 2027.
The company's updated guidance indicates a roughly $40 million, or 11%, decrease in FY24 revenue projections and a midpoint EBITDA of $65 million, a steep decline from the previously anticipated $102 million. Cerence has also decided to remove its long-term forecasts due to a reassessment of customer production expectations, which have not materialized as previously predicted.
Cerence's visibility into future performance has diminished, with the analyst noting that what was already a low visibility situation has now become one with no visibility. This change in outlook is expected to cause investors to remain cautious and potentially stay on the sidelines until a clearer financial trajectory for the years 2025 to 2027 is established.
The revised figures for FY24 include revenue estimates ranging from $318 million to $332 million, down from $355 million to $375 million. Gross margin projections have also been lowered to a range of 73-75% from the prior 76-77%, with EBITDA now expected to fall between $58 million and $72 million, compared to the earlier forecast of $94 million to $109 million. Earnings per share (EPS) are now anticipated to be around $0.80, a decrease from the previous range of $1.32 to $1.62.
Looking ahead, the withdrawal of the multi-year guide has cast uncertainty on the company's performance in 2026 and beyond. The initial multi-year guide had suggested a potential EPS of over $1.50 for 2026, based on an EBITDA of $100 million to $110 million.
Still, this outlook has been retracted, and projections for 2025 now suggest an EBITDA that could be anywhere from zero to negative $20 million, reflecting a possible revenue guide of approximately $250 million for that year.
The stock price target revision to $8.00 is based on an approximate 12 times multiple of a preliminary 2026 EPS estimate of 60 to 70 cents, with 2025 EPS now expected to be negative. The analyst's projection for Cerence's average EPS from 2022 to 2026 has been adjusted to roughly 60 cents.
InvestingPro Insights
As Cerence Inc. (NASDAQ:CRNC) navigates through its revised financial expectations, real-time data from InvestingPro provides a more detailed picture of the company's current standing. With a market capitalization of $280.47 million, Cerence is trading at a Price / Book multiple of 0.54, indicating that the stock may be undervalued relative to the company's book value. This could be of interest to value investors looking for potential opportunities.
InvestingPro Tips suggest that Cerence's net income is expected to grow this year, which aligns with the company's efforts to recalibrate its financial trajectory. Moreover, analysts predict the company will be profitable this year, offering a glimmer of optimism amidst the recent downward revisions in financial forecasts. It's also notable that Cerence's liquid assets exceed its short-term obligations, providing a cushion for operational flexibility.
For those considering an investment in Cerence, it's worth noting that the company does not pay a dividend to shareholders, which may influence the investment strategy for income-focused investors. For a more comprehensive analysis, there are 11 additional InvestingPro Tips available, which can be accessed through InvestingPro's dedicated page for Cerence. To make the most of these insights, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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