Cadence Design in a Mess

Cadence Design Systems Inc. (CDNS - Snapshot Report) appears to be in big trouble as the company’s CEO resigned unexpectedly amid mounting financial problems and disappointing results.

Adding to the upheaval, the company delayed its Q308 earnings results, expected to be released on October 22nd, on improper accounting issues related to contract revenues signed during Q1. Cadence has been losing share to Synopsys and is struggling through a downturn in the semiconductor cycle. The company also withdrew its bid for Mentor Graphics, further dimming its growth prospects.

Shares of Cadence are currently trading near its 52-week low price. Although the stock has fallen significantly this year, we believe it will fall farther given CDNS poor outlook. We therefore believe that the stock should trade at a discount to its peer group. More challenging economic conditions are likely to affect the semiconductor industry and flow through to the EDA market as well, although at this point, Cadence appears to be the hardest hit.

We therefore, maintain our Sell recommendation on CDNS shares and cut our six-month target price to $2.00. Our target price of $2.00 represents a P/S multiple of 1.0x our 2009 sales estimates of $4.12.

Priyanka Poddar contributed to the report.

Read the full analyst report on CDNS

Read the full analyst report on CDNS