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Cadence (CDNS) Stock Gains 69% YTD: Will the Uptrend Last?
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Cadence Design Systems (CDNS - Free Report) witnessed strong momentum year to date, with its shares up 69% in the same time frame compared with 53.6% and 23.4% growth of the sub-industry and S&P 500 Composite, respectively.
Cadence offers products and tools that help customers to design electronic products. Cadence’s core electronic design automation software and services enable engineers to develop different types of ICs.
Image Source: Zacks Investment Research
Catalysts Behind the Price Surge
Let’s delve deeper to unearth the factors working in favor of this Zacks Rank #3 (Hold) stock.
The company is well-positioned to benefit from continued demand for the company’s diversified product portfolio and strategic collaborations. The company is likely to benefit from increased spending by enterprises on emerging categories like IoT and AR/VR.
Per data from the Fortune Business Insights report, the global IoT market is likely to witness a CAGR of 26.1% between 2023 and 2030. This presents a significant growth opportunity for semiconductor chip makers as well as electronics sensor developers.
The company’s verification business is gaining traction due to the rising complexity of system verification and software bring-up. Also, increasing customer adoption of Cadence Cerebrus AI-driven solution is a major tailwind.
The company's management emphasized that design activity remains strong due to transformative generational trends, including AI, hyperscale computing, 5G, and autonomous driving. They also observed an increase in the production of 3D-IC and chiplet designs, and a growing number of system companies are now focusing on building custom silicon. In addition to these, management also raised their full-year guidance based on strong third-quarter results.
Revenues for 2023 are now projected in the range of $4.06-$4.1 billion compared with the earlier guidance of $4.05-$4.09 billion. Non-GAAP earnings per share (EPS) for 2023 are now expected to be between $5.07 and $5.13 compared with the earlier guidance of $5.05-$5.11.
Cadence witnessed earnings growth of 27.5% in the past five years, higher than the industry average of 12%. The stock has an impressive long-term EPS growth expectation of 19.5%, higher than the industry average of 13.1%.
The company also has a steady share repurchase program. The company repurchased shares worth approximately $185 million in the third quarter. Management intends to buy back worth approximately $125 million in the fourth quarter of 2023.
A Look at Estimates
The company’s earnings are expected to increase 19.4% and 13.3% on a year-over-year basis in 2023 and 2024, respectively. CDNS’s 2023 and 2024 revenues are anticipated to rise 14.8% and 10.9% year over year, respectively.
Cadence has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 4.1%.
Recent Developments
In December, the company announced that it is teaming up with the Antiviral Platform (ASAP) Discovery Consortium to develop antivirals to prevent pandemics in the future. CDNS will offer its OpenEye molecular design software to drive the open-science AI-driven structure-enabled ASAP platform.
In November, the company announced that Samsung Foundry had completed the development of a 5G networking system on chip design using Samsung's 5LPE technology, powered by Cadence Quantus Extraction Solution and Tempus Timing Solution.
Few Headwinds
Apart from its solid fundamentals, the company is prone to several risks. The company operates in a highly competitive and capital-intensive simulation market. This is likely to negatively impact the company’s performance.
Also, supply-chain constraints and unfavorable foreign currency movement are headwinds.
The Zacks Consensus Estimate for Pegasystems’ 2023 EPS has improved 21.2% in the past 60 days to $1.77. PEGA delivered an average earnings surprise of 1,250.2% in the trailing four quarters. Shares of PEGA have soared 51% in the past year.
The Zacks Consensus Estimate for Flex’s fiscal 2024 EPS has increased 3.6% in the past 60 days to $2.56. Flex’s long-term earnings growth rate is 12.4%.
Flex’s earnings outpaced the Zacks Consensus Estimate in each of the last four quarters, the average earnings surprise being 11%. Shares of the company have risen 19.8% in the past year.
The Zacks Consensus Estimate for Watts Water Technologies 2023 EPS has improved 3.9% in the past 60 days to $8.08. Watts Water’s long-term earnings growth rate is 7.8%.
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Cadence (CDNS) Stock Gains 69% YTD: Will the Uptrend Last?
Cadence Design Systems (CDNS - Free Report) witnessed strong momentum year to date, with its shares up 69% in the same time frame compared with 53.6% and 23.4% growth of the sub-industry and S&P 500 Composite, respectively.
Cadence offers products and tools that help customers to design electronic products. Cadence’s core electronic design automation software and services enable engineers to develop different types of ICs.
Image Source: Zacks Investment Research
Catalysts Behind the Price Surge
Let’s delve deeper to unearth the factors working in favor of this Zacks Rank #3 (Hold) stock.
The company is well-positioned to benefit from continued demand for the company’s diversified product portfolio and strategic collaborations. The company is likely to benefit from increased spending by enterprises on emerging categories like IoT and AR/VR.
Per data from the Fortune Business Insights report, the global IoT market is likely to witness a CAGR of 26.1% between 2023 and 2030. This presents a significant growth opportunity for semiconductor chip makers as well as electronics sensor developers.
The company’s verification business is gaining traction due to the rising complexity of system verification and software bring-up. Also, increasing customer adoption of Cadence Cerebrus AI-driven solution is a major tailwind.
The company's management emphasized that design activity remains strong due to transformative generational trends, including AI, hyperscale computing, 5G, and autonomous driving. They also observed an increase in the production of 3D-IC and chiplet designs, and a growing number of system companies are now focusing on building custom silicon. In addition to these, management also raised their full-year guidance based on strong third-quarter results.
Revenues for 2023 are now projected in the range of $4.06-$4.1 billion compared with the earlier guidance of $4.05-$4.09 billion. Non-GAAP earnings per share (EPS) for 2023 are now expected to be between $5.07 and $5.13 compared with the earlier guidance of $5.05-$5.11.
Cadence witnessed earnings growth of 27.5% in the past five years, higher than the industry average of 12%. The stock has an impressive long-term EPS growth expectation of 19.5%, higher than the industry average of 13.1%.
The company also has a steady share repurchase program. The company repurchased shares worth approximately $185 million in the third quarter. Management intends to buy back worth approximately $125 million in the fourth quarter of 2023.
A Look at Estimates
The company’s earnings are expected to increase 19.4% and 13.3% on a year-over-year basis in 2023 and 2024, respectively. CDNS’s 2023 and 2024 revenues are anticipated to rise 14.8% and 10.9% year over year, respectively.
Cadence has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 4.1%.
Recent Developments
In December, the company announced that it is teaming up with the Antiviral Platform (ASAP) Discovery Consortium to develop antivirals to prevent pandemics in the future. CDNS will offer its OpenEye molecular design software to drive the open-science AI-driven structure-enabled ASAP platform.
In November, the company announced that Samsung Foundry had completed the development of a 5G networking system on chip design using Samsung's 5LPE technology, powered by Cadence Quantus Extraction Solution and Tempus Timing Solution.
Few Headwinds
Apart from its solid fundamentals, the company is prone to several risks. The company operates in a highly competitive and capital-intensive simulation market. This is likely to negatively impact the company’s performance.
Also, supply-chain constraints and unfavorable foreign currency movement are headwinds.
Stocks to Consider
Some better-ranked stocks in the broader technology space are Pegasystems (PEGA - Free Report) , Flex (FLEX - Free Report) and Watts Water Technologies (WTS - Free Report) . Pegasystems and Flex presently sport a Zacks Rank #1 (Strong Buy), whereas Watts Water Technologies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Pegasystems’ 2023 EPS has improved 21.2% in the past 60 days to $1.77. PEGA delivered an average earnings surprise of 1,250.2% in the trailing four quarters. Shares of PEGA have soared 51% in the past year.
The Zacks Consensus Estimate for Flex’s fiscal 2024 EPS has increased 3.6% in the past 60 days to $2.56. Flex’s long-term earnings growth rate is 12.4%.
Flex’s earnings outpaced the Zacks Consensus Estimate in each of the last four quarters, the average earnings surprise being 11%. Shares of the company have risen 19.8% in the past year.
The Zacks Consensus Estimate for Watts Water Technologies 2023 EPS has improved 3.9% in the past 60 days to $8.08. Watts Water’s long-term earnings growth rate is 7.8%.