Obama's emphasis on EMR to improve health care outcomes and drive down cost.

upside potential

Strong Buy - Price 13.08 on May 12
by Raymond James

Nuance reported a good overall F2Q09...considering the macro environment. Non-GAAP EPS was 24 cents, versus consensus of 22 cents...[earnings before interest and taxes] were $74.7 million, versus our E$66.8 million. F2Q09 revenue was $238.8 million (up 9% year/over/year, down 2% sequentially), below consensus $245.2 million...primarily due to weakness in nonmedical Dragon and imaging....For FY09, Nuance lowered revenue guidance to [a range of] $1 billion to $1.02 billion (from $1.01 billion to $1.14 billion)....We're raising our target to 16 from 15, based on 16 times our FY09 non-GAAP EPS estimate of $1. Market cap: $3.5 billion.

From a recent Mad Money show:"I think you need to take the money and run. Ring the register, I'm a seller. Take profits."

love the technology

Another of the portfolio chief's favorites, Nuance Communications (NUAN) creates speech-recognition and image-digitalization tools. Its shares came under pressure recently, following the pricing of a 5.6 million-share offering. "Organic growth was a little slower than we'd like this past quarter, but management expects a better second half of the year," Oberweis says.

new tech solutions

leader in voice recognition

Citigroup analyst Brent Thill went through a similar exercise last week and came up with some other M&A possibilities in software -- Informatica (INFA), Tibco (TIBX) and BladeLogic (BLOG). Other potential targets, he says, include Check Point Software Technologies (CHKP), THQ (THQI) and Nuance (NUAN).

Nuance Comm. (NUAN) was upgraded to Buy, Citigroup said. Stock is down 29% from its November highs, and is growing much faster than its peers. $23 price target.

Never moves.

Burlington, Mass.-based Nuance has cobbled together a collection of businesses involving transcription, including the venerable Dictaphone and the software product, Dragon Naturally Speaking. A large part of what Nuance paid for some businesses is in the form of "earn outs" from the post-acquisition performance of those businesses. These arrangements allow Nuance to shift acquisition expenses off its income statement and on to its balance sheet, where they will forever remain, observes AssayResearch in a February 12 analysis of Nuance. Such moves would tend to exaggerate the profitability of these acquisitions.