Cerence Jumps 8.6% on Solid Q3 Results

Shares of Cerence (CRNC) rallied 8.6% on Monday and closed at $114.55 after it reported better-than-expected Q3 results on solid top-line growth. The company provides conversational AI to auto manufacturers and mobility original equipment manufacturers (OEMs).

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Adjusted earnings of $0.62 per share grew 93.8% year-over-year and surpassed analysts’ expectations of $0.54 per share. The company reported adjusted earnings of $0.32 per share in the year-ago period.

Revenues jumped 29% year-over-year to $96.8 million and beat the Street’s estimates of $96.3 million. The company’s license revenues, which accounted for 51.6% of the total revenues, rose 54% year-over-year to over $50 million.

The number of Cerence-enabled cars shipped as compared to IHS Markit car production data was 53% so far this year. Also, the year-over-year growth in the number of cars shipped with Cerence connected solutions was 12%. (See Cerence stock charts on TipRanks)

The CEO of Cerence, Sanjay Dhawan, said, “With a record of more than 60 SOPs in the quarter from more than 15 different automakers, and the bookings momentum for our new products and connected services, we expect to continue to grow faster than the auto SAAR (seasonally adjusted annual rate).”

For the fiscal fourth quarter, the company expects to post revenue in the range of $97 million to $101 million, representing 6% to 11% growth compared to the same quarter a year ago. Also, adjusted EBITDA is expected to be in the range of $36 million to $39 million.

Last month, Raymond James analyst Brian Gesuale downgraded the rating on Cerence to Hold. The analyst noted, “We still think CRNC is a key automotive disruptor and clear leading provider of Voice enabled AI solutions; but believe risk/reward is more congruent given share appreciation, trading multiple expansion, and a set of expectations that make over delivering a tough endeavor on the top line.”

Consensus among analysts is a Moderate Buy based on 4 Buys and 3 Holds. The average Cerence price target stands at $132.71, implying upside potential of 7.5%. Shares have gained 129.7% over the past year.