Goldman Sachs Raises Cerence's Target Price to $10.00 Amid Neutral Rating

Goldman Sachs has raised Cerence's (CRNC) target price to $10.00 from $9.00, an 11.11% increase, while maintaining its "Neutral" rating. The firm's previous target was raised to $9.00 from $8.00 in May. Cerence is a US-based software company that develops mobility-based solutions for drivers and their cars, with revenue generated from software licenses and cloud-connected services. The average target price for Cerence is $12.00, implying a 26.12% upside from the current price.

Goldman Sachs has increased its price target for Cerence (CRNC) to $10.00 from $9.00, a 11.11% increase, while maintaining a Neutral rating. This move comes after Cerence's strong third-quarter (Q3) fiscal year 2025 earnings report, which exceeded both earnings per share (EPS) and revenue expectations [1].

Cerence reported an EPS of -$0.06, outperforming the forecast of -$0.13, marking a surprise of 53.85%. Revenue reached $62.2 million, surpassing the anticipated $54.94 million. Following the announcement, Cerence's stock rose 10.96% in premarket trading, reflecting investor optimism [1].

The firm's previous target was raised to $9.00 from $8.00 in May. Cerence is a US-based software company that develops mobility-based solutions for drivers and their cars, with revenue generated from software licenses and cloud-connected services. The average target price for Cerence is $12.00, implying a 26.12% upside from the current price [1].

Cerence demonstrated robust performance in Q3 2025, with revenue growing by 48% year-over-year in variable license revenue and 17% in connected services. The company shipped 12.4 million units, marking a 12% increase in connected cars. This performance highlights Cerence’s strong foothold in the automotive AI sector, despite a challenging macroeconomic environment [1].

Financial Highlights
- Revenue: $62.2 million, above the previous guidance of $52 million to $56 million.
- Earnings per share: -$0.06, compared to a forecast of -$0.13.
- Gross margin: 74%, up from 72% the previous year.
- Adjusted EBITDA: $9 million, exceeding the guidance of $1 million to $4 million.
- Free cash flow: $16.1 million, marking five consecutive quarters of positive flow [1].

Market Reaction
Post-earnings, Cerence’s stock experienced a notable increase, rising 10.96% in premarket trading. This positive reaction reflects investor confidence in the company’s ability to exceed expectations and manage costs effectively. The stock’s current price of $8.58 is well within its 52-week range of $2.34 to $27.50, suggesting room for further growth. InvestingPro data shows the stock has delivered an impressive 262% return over the past year, though it remains volatile with a beta of 2.86 [1].

Outlook & Guidance
Cerence has raised its full-year revenue guidance to between $244 million and $249 million, alongside an adjusted EBITDA range of $42 million to $46 million. The company also increased its free cash flow guidance to $38 million to $42 million. Looking ahead, Q4 revenue is expected to be between $53 million and $58 million, with a continued focus on expanding AI capabilities and customer growth [1].

Executive Commentary
CEO Brian Krzanich highlighted the company’s innovation, stating, "We’re seeing people more and more enjoy that feature. Hey, my feet are cold. The system knows then to turn on the floor heat." CFO Tony Rodriguez added, "We’re comfortable in operating the business at this level, by the expectation of continued positive cash flow." [1]

Risks and Challenges
Potential vehicle production delays and pushouts could impact future revenue. Macroeconomic pressures and supply chain issues remain a concern. The competitive landscape in automotive AI is intensifying. Expansion into non-automotive markets poses execution risks [1].

References:
[1] https://za.investing.com/news/transcripts/earnings-call-transcript-cerence-q3-2025-beats-eps-and-revenue-forecasts-93CH-3824682
[2] https://www.goldmansachs.com/