A month has gone by since the last earnings report for Cadence Design Systems, Inc. (CDNS Quick QuoteCDNS - Free Report) . Shares have added about 14.3% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CDNS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Cadence Design Systems delivered strong results for first-quarter 2018. Both the top and bottom lines fared better than the respective Zacks Consensus Estimate as well as managements guided ranges. Notably, the company has adopted the new revenue rules of ASC 606 and accordingly incorporated the same while reporting the first-quarter results.

Cadence delivered non-GAAP earnings of 40 cents per share for the first quarter, surpassing the Zacks Consensus Estimate by a couple of cents. Management had predicted earnings between 36 and 38 cents.

Quarter in Detail

Revenues increased 8.5% year over year to $517.3 million, beating the Zacks Consensus Estimate of $506 million. The top line also crossed the high end of management’s expectation of $500-$510 million.

Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base fueled the overall year-over-year growth.

The company has also witnessed significant demand from aerospace and defense sectors.

Geographically, Americas, Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 45%, 27%, 20% and 8%, respectively to the total revenues.

The company reported GAAP and non-GAAP operating margin of 17% and 28% respectively.

Segmental Highlights

Segment-wise, Digital IC and signoff, Functional Verification, Custom IC design, IP, and Systems Interconnect & Analysis comprised 29%, 26%, 26%, 10% and 9% of the total revenues, respectively.

Cadence Verification Suitegrew around 20% on a year-over-year basis. The company’s well-known emulator, Palladium, won five new customers and successfully signed 17 repeat orders. Protium S1, which shares front-end with Palladium Z1, also gained traction. Protium won four new customers and was able to book five repeat orders.

Moreover, the company’s parallel logic simulator, Xcelium, witnessed the addition of 30 new customers in mobile, communication, storage and memory segments.

In the Digital IC Design and Signoff segment, the company strengthened its collaboration with Imec to tapeout the industry’s first ever 3nm test chip. The chip complemented company’s innovative digital implementation tools with Imec’s development infrastructure. It is designed to aid digital transformation of mobile architecture at advanced nodes.

Moreover, 7 nm design of Cadence has been adopted by notable companies. A major defense contractor will leverage Cadence’s digital flow for its in-house chip design.

Going ahead impressive adoption of flagship — DDR and PCI — products generated revenues for the IP segment. The company unveiled Tensilica Vision Q6, enhanced processor for embedded vision for on-device AI applications.

Further, Cadence Tensilica Vision P5 DSP enabled GEO Semiconductor’s (“GEO”) GW5400 camera video processor to run company’s in-camera computer vision. The DSP platform’s advanced driver assistance systems (“ADAS”) capabilities will enhance automated driving experience.

The low power, high-performance featured Cadence Tensilica Fusion F1 DSP was enabled to support Galileo Satellite Navigation’s (“GSN”) software-based Global Navigation Satellite System (“GNSS”) GPS receiver during the quarter. The newly added technology is aimed to boost the company’s DSP platform user experience as they can avail cost-effective location-based IoT services.

Cadence Design together with Advanced Semiconductor Engineering (“ASE”) unveiled a System-in-Package (SiP) EDA solution to effectively verify and design Fan-Out Chip-on-Substrate (“FOCoS”) multi-die packages. The solution will enable ASE to deliver high-performance futuristic package technologies.

Growth across PCB implementation, IC packaging, and Sigrity power integrity analysis remained a positive for the Systems Interconnect and Analysis segment. Cadence executed notable first-of-a-kind successful projects during the quarter.

Cadence Sigrity PowerDC technology adopted the new open neutral file format of Future Facilities’ during the quarter. This will expand its thermal component model base by effectively organizing the thermal supply chain and reducing the design cycle duration by up to two weeks.

Cadence’sCustom IC Design segmentis benefitting from its sustained focus on bringing in new and innovative products. Cadence enhanced Virtuoso custom IC design platform with innovative capabilities, including support for 5 nm nodes. These new enhancements shall improve electronic system and IC design productivity.

Bosch, company’s automotive customer, has endorsed the new system. The company revealed that its Virtuoso System Design Platform is being adopted by “defense contractors, analog semiconductor companies, and mobile chip makers.”

Balance Sheet & Cash Flow

The company ended the quarter with cash and short-term investments of $752.4 million compared with the previous quarter’s figure of $692.5 million.

Cadence’s long-term debt has reduced to $344.8 million from $644.4 million recorded at the end of previous quarter. The company generated operating cash flow of $158 million during the reported quarter.

The company repurchased shares worth $50 million in the first quarter.

Guidance

For second-quarter 2018, Cadence expects total revenues in the range of $510-$520 million and non-GAAP earnings in the range of 39-41 cents per share.

The Zacks Consensus Estimates for revenues and earnings are pegged at $504.8 million and 37 cents, respectively. Non-GAAP operating margin is anticipated to be in the range of 27-28%.

The company raised 2018 outlook expecting the first-quarter momentum to sustain. Revenues are now projected to be in the range of $2.055-$2.085 billion, up from $2.015-$2.055 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.57-$1.65 per share, raised from previous band of $1.50-$1.60.

Non-GAAP operating margin for 2018 is expected to lie in 27-28% range. Previously, the company has predicted non-GAAP operating margin of 27%. Similarly, operating cash flow is expected to come in the range of $510-$550 million, instead of earlier prediction of $480-$530 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 17.2% due to these changes.

Cadence Design Systems, Inc. Price and Consensus

Cadence Design Systems, Inc. Price and Consensus | Cadence Design Systems, Inc. Quote

VGM Scores

At this time, CDNS has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise CDNS has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.