Does Nuance Communications Inc. (NUAN) Really Deserve to be Left for Dead?

The problem analysts have with Nuance’s report is its guidance. For the in-progress second fiscal quarter, Nuance is looking at $500 million to $553 million in revenue and $0.35 to $0.45 per share in adjusted earnings, which bests analyst expectations of $524 million in revenue, but falls a bit short of the Street’s $0.44 EPS projections. Nuance also anticipates adjusted revenue in the $2.15 billion to $2.20 billion range for the full year, with $1.76 to $1.87 per share in adjusted earnings. Both numbers are disappointing in light of the $2.2 billion top line and $1.89 in EPS analysts sought, but we should unpack that to get a clearer picture of what it really means.

At the mid-range of each figure — $527 million for the second quarter and $2.18 billion for the full year — Nuance would be posting year-over-year growth of 35% for the quarter and 32% for the full year. The problem lies in the company’s earnings guidance. At a midpoint of $1.82 per share, Nuance expects only 5% growth in earnings over fiscal 2012’s adjusted EPS of $1.73. At the high end, it’s still only 8% growth, indicating margin contraction for the year ahead.

Nuance might surprise us all yet. Keep in mind that after its big drop, its stock has a price-to-free-cash-flow ratio of 13.8. That’s hardly expensive, and even if free cash flow growth slows along with net income, there’s still a good deal of upside to this somewhat misunderstood stock. It will depend largely on how effectively Nuance can generate further interest in its services from the medical field.

The article Does Nuance Really Deserve to be Left for Dead? originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes holds no financial stake in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.The Motley Fool recommends Apple, iRobot , and Nuance Communications. The Motley Fool owns shares of Apple and Nuance Communications.

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