Wednesday, June 21, 2006

Calls of Note Part 3

- Raymond James notes they recently spoke with the head of the contender in the speech recognition market, Microsoft, and the definitive leader, Nuance (NASDAQ:NUAN). Based on these discussions, they believe Nuance continues to be very well positioned in a high growth market. Sequential growth in network speech, a little potential upside in the Dictaphone acquisition, and the PaperPort product launch during the June quarter should help Nuance produce an in-line June quarter.

Firm reiterates Strong Buy rating and $15 target on NUAN based on a 31x P/E applied to 2H07 EPS estimate annualized; 31x represents a PEG of about 1x. NUAN is trading at only 18x firm's F2007 EPS estimate. A slight revenue miss in F2Q06 and a bad tech tape are providing investors with a great opportunity to buy the leading vendor of speech recognition solutions ahead of the seasonally strong portion of the year, ahead of the launch of a new dictation product, ahead of the integration of a highly profitable acquisition, and ahead of what they believe will be strong margin expansion.

Notablecalls: No actionable but good to know category. Raymond James has one of the best research teams on the Street and with close to 100% price target NUAN bears watching.

- Banc of America notes that despite the recent sell off in the stock, they remain Neutral on Foundry Networs (NASDAQ:FDRY). They believe 2007 sales estimates are aggressive, particularly since they are cautious on the company's ability to penetrate the carrier markets. Lowers their price target from $15.00 to $11.50.

Following a slow start to the quarter, firm's contacts indicate that order growth at Foundry has been strong over the past six weeks. Deal activity and size seems to have steadily grown throughout the quarter. Despite some signs of pricing pressure they believe the outlook remains healthy for the June and September periods.

Firm sees risk to cons '07 sales estimates, which they believe bake in a large contribution from the XMR and MLX carrier routing platforms. While these products are functionally strong, Foundry has had little success penetrating this market and lacks the relationships to succeed in this vertical.

Notablecalls: Looking at FDRY's chart I'd say BofA is somewhat late with their call

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