On Friday, a Craig-Hallum analyst increased the price target on Cerence Inc . (NASDAQ:CRNC) to $6.00, up from the previous $3.50, while maintaining a Hold rating on the stock. The adjustment follows Cerence’s financial performance, which showed revenue at the high end of expectations and EBITDA surpassing forecasts. The company’s forward guidance also significantly exceeded market expectations that were notably low.
Cerence, known for integrating AI into automotive systems, has guided for $25 million in free cash flow (FCF) for the fiscal year 2025, with a projection of $34 million when excluding one-time items.
Despite this positive outlook, there are concerns about the company’s need for a substantial increase in top-line growth to meet its targets, considering its history of falling short in this area. The balance sheet also presents potential worries due to the company's cash position of $127 million against a debt of $282 million, with $87 million of that debt now classified as current.
The analyst acknowledged Cerence’s quick action on significant cost reductions and a return to what appears to be sustainable free cash flow. However, the balance sheet is still seen as a potential issue by some. Long-term success for Cerence is believed to hinge on its revenue growth, which has been challenged by market share losses and flat proforma licenses when adjusted for unusual items.
The debate continues over the preferred method for speech recognition in vehicles—whether through cell phones connected via Bluetooth or built-in car systems. Cerence's stock performance in the longer term is expected to depend on consistent operational execution.
Currently, the company's shares are trading at 1.7 times enterprise value (EV) to projected 2025 revenue, 19 times EV to EBITDA, and 12 times EV to FCF. The analyst concluded by reiterating the Hold rating and raising the price target to $6.00.
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