This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Are Nuance and Rackspace takeover targets?

By Chris Lau for Kapitall.

After a stock sells off excessively, Whispers and rumors that a company will be taken over start to spread. Low valuations frustrate value investors, and even more so when its shares fail to rebound. Nuance Communications (NUAN) is one example of this phenomenon. Its shares jumped above $19, but are now pulling back.

Nuance is not the only value play in town. Rackspace Hosting (RAX) is another takeover candidate. It, too, is pulling back after rumors circulated that the company does not have an interested buyer.

Both companies have potential upside. Nuance is more fairly valued relative to Rackspace. Nuance has a forward P/E of 28, compared to 48 for Rackspace.

A takeover of Nuance faces complexity challenges. Nuance has a product line that is diversified among many market sectors, from healthcare to enterprise. Investors hoped Samsung might buy Nuance. Apple (AAPL), which uses Nuance technology, might not be receptive to this.

Samsung buyout makes sense

If Samsung bought Nuance, it would leave Apple vulnerable. Apple would need to develop a solution comparable to that offered by Nuance. More importantly, Nuance’s value would go up if Apple decided it could not find a better supplier for voice recognition solutions.

Nuance structure complex

Nuance’s complex structure might not help shareholder’s realize full value as the company reports weak results, but there is tremendous value that has yet to be unlocked by the market. Nuance is in the midst of moving its revenue from software sales to SaaS, or Software as a service.

Bottom line

Investors could see Nuance share dip further as the takeover rumor dissipates. Nuance is still a good takeover candidate, and investors holding the stock will be rewarded. Like Rackspace, its shares are for investors with a multi-year time horizon. As revenue improves over the course of 2014, so, too, will its share price.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs