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Cadence Design Systems, CyberArk, Microsoft, Intel and Google highlighted as Zacks Bull and Bear of the Day

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For Immediate Release

Chicago, IL – August 24, 2021 – Zacks Equity Research Shares of Cadence Design Systems, Inc. (CDNS - Free Report) as the Bull of the Day, CyberArk Software Ltd. (CYBR - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft Corporation (MSFT - Free Report) , Intel Corporation (INTC - Free Report) and Alphabet Inc. (GOOGL - Free Report) .

Here is a synopsis of all five stocks:

Bull of the Day:

Cadence Design Systems is a $43 billion provider of software that designs semiconductors. After a beat-and-raise Q2 reported on July 26, estimates, price targets and the stock have all made new highs.

Here's what I wrote on May 21 for my TAZR Trader members when we bought shares and I explained the company's unique business...

Portfolio is buying Cadence with a 7% allocation between $122 and $125. While I'm fine paying $125, it could fill yesterday's gap back to $122.

I profiled this $35 billion provider of industrial automation design products (think CAD/CAM goes AI) last August and again in December, saying we had to be buyers of dips under $110. See my Dec 28 commentary "Stealth AI Companies" for more background.

Through its System Design Enablement (SDE) strategy, the company offers software, hardware, services and reusable IC design blocks (IPs) to electronic systems and semiconductor customers.

Cadence’s core Electronic Design Automation (EDA) software and services enable engineers to develop different types of ICs. Its design IP’s are directly integrated into the ICs.

This Zacks #2 Rank is not cheap at 12X sales, but after a solid beat-and-raise Q1 reported in late April, several analyst price targets moved to $160 and higher.

(end of May 21 TAZR excerpt)

Nexus of Software and Industrial Design

The software to design semiconductors has become ever more important for at least 3 reasons...

First, transistor architecture has slipped to sub-microscopic levels under 10 nanometers, smaller than the coronavirus.

Second, the proliferation of applications in autos, mobile, home, factory, and datacenter are accelerating demand and custom solutions for OEMs.

Third, the engineering, testing and simulation of these ultra-miniature designs are critical before they are shipped to a chip foundry, or "fab."

Cadence posted second-quarter 2021 non-GAAP earnings of 86 cents per share, which topped the Zacks Consensus Estimate by 14.7%. The bottom line increased 30.3% year over year.

Revenues of $728 million surpassed the Zacks Consensus Estimate by 1.7% and increased 14% on a year-over-year basis. The top line benefited from continued strength across all segments. The company ended the second quarter with a backlog of $3.9 billion.

“Cadence delivered outstanding financial results for the second quarter on broad based customer demand as the Cadence team continues to execute exceedingly well.” said Lip-Bu Tan, chief executive officer. “Generational drivers are fueling strong design activity and our ISD strategy (Intelligent System Design) coupled with a strong innovation engine that has led to introducing eight significant new products so far this year, positions us extremely well to delight our customers and accelerate growth.”

After the strong quarter and outlook, Wall Street analysts moved full-year EPS from $3.04 to $3.17, representing 13.2% growth. Revenues are now projected to hit $2.94 billion for a 9.5% advance. Here were some analyst reactions...

Baird analyst Joe Vruwink raised estimates and the firm's price target on Cadence Design to $168 from $160 and keeps an Outperform rating on the shares. The analyst noted its strong Q2 results and raised guidance as well as a CEO transition that he expects should be seamless.

KeyBanc analyst Jason Celino raised estimates and his price target to $166 from $162, noting broad-based strength in the beats with particularly robust strength in digital, functional verification, and China. He found that the company raising its 2021 guidance on all metrics due to better visibility and continued strong demand was also a plus that may have softened the surprise of an announced CEO transition, concluding "CDNS remains one of our core ideas to own. Remain buyers."

The NVIDIA Connection

Since that July report and analyst reaction, shares took out old resistance highs at $148 and are still pushing new all-time highs above $157 as I type on Monday afternoon.

So should new buyers of CDNS put money to work up here? If only to make you pay attention and learn more about the industry, I would say yes, you can start a position near $155. And then you'll be ready for any pullbacks toward $150.

That's how important I think Cadence is, even trading at 14 times sales. Because as I've explained to my followers, it's really almost in a duopoly with its nearest peer Synopsys, who also just delivered a big beat-and-raise quarter.

And as the US Senate just approved a large stimulus bill for the chip industry, more engineering tools will be in demand. The bill provides $52 billion for domestic semiconductor manufacturing, as well as a 30 percent boost in funding for the National Science Foundation and $29 billion for a new science directorate to focus on applied sciences.

But my biggest reason for staying long CDNS is when I saw them featured in an NVIDIA presentation in June. CEO Jensen Huang delivered a video keynote to the Teratec HPC (High-Performance Computing) virtual conference.

After discussing some of the latest applications of massively-parallel NVIDIA architectures across technology, science, medicine, and the arts, Jensen explained why simulation is so important in their chip designs. And the only featured partner in that segment, indeed the entire 18-minute video I believe, was Cadence.

NVIDIA is a good customer to have. I shared that clip in my Top Stock Pick video, recorded Monday morning...

Cadence is a Top Pick of Top Chip Designers

Disclosure: I own shares of NVDA and CDNS for the Zacks TAZR Trader portfolio.

Bear of the Day:

CyberArk is a $6 billion provider of IT security solutions to more than 5,000 global businesses, which include over 50% of the Fortune 500 and more than 35% of the Global 2000 companies.

It turns out, there are not really one-provider-fits-all security needs, with many specializing in different aspects, from firewalls and identity to endpoint and data governance. That explains how CYBR can have so many big customers and still be struggling with profitability.

CYBR reported mixed Q2 results on August 12, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line lagged the same. The leading Identity Security solution provider reported non-GAAP earnings of a penny, missing the Zacks Consensus Estimate of 3 cents per share. The figure declined 97.6% from the year-ago quarter’s earnings of 42 cents per share.

CYBR reported revenues of $117.2 million, beating the consensus mark of $116.3 million. The top line witnessed a year-over-year advance of 10%. Markedly, 68.8% of quarterly revenues were recurring in nature, which jumped 32.6% year over year to $80.6 million.

Annual Recurring Revenues (ARR) increased 35% to $315 million. The maintenance portion, representing 65% of total ARR, increased 10.9% year over year to $205.7 million. Subscription portion, which accounted for 35% of the total ARR, soared 128% year over year to $109.5 million. This upside was mainly driven by a record number of SaaS solutions bookings and strong demand for on-premises subscription offerings.

Segment-wise, subscription revenues (23.1% of total) were $27.1 million, up by 101% percent from the year-ago quarter.

Maintenance and professional services revenues (53.6% of total) climbed 10% at $62.9 million from the year-ago quarter.

Perpetual license revenues (23.3% of total) slumped 23.5% to $27.3 million at the close of this quarter.

CyberArk’s subscription transition is witnessing strong momentum, with a rapidly growing base of recurring revenues.

SaaS and subscription bookings created additional headwinds of about $13 million for the second quarter. However, strong demand for the company’s solutions more than offset this and drove top-line growth, as they gained 185 new customers.

Why CYBR Is a Zacks #5 Rank

Based on guidance about the transition, Wall Street analysts lowered their EPS estimates significantly.

CyberArk said they now expect adjusted earnings of $0.01 to $0.26 per share, versus the prior guidance of $0.39 to $0.64. It continues to expect revenue of $484 million to $496 million.

Following this reveal, the Zacks full-year EPS consensus dropped 65% from 55-cents to 17-cents, representing a 92% decline from last year. And next year was slashed by over 50% among 10 covering analysts submitting estimate revisions.

CyberArk's transition may continue to attract new customers, but until the profit picture turns around it may be best to take profits after the recent run-up toward the old highs at $165.

The Zacks Rank will let you know.

Additional content:

Stocks to Watch Amid Growing IoT Adoption Within Retail

The retail segment has been using technological advancements over the years, to improve customer experience, and boost efficiency and profitability. Reflective of this, the Internet of Things (“IoT”) technology has made significant in-roads within the retail space.

With the help of IoT, retailers gather useful data about their customers, such as product preference and purchase history, and gain actionable insights that aid in improving customer engagement. By analyzing the information, retailers can offer personalized recommendations to their customers, allowing them to find and eventually purchase their desired products.

Personalized recommendations have been popularized by online shopping, which gained further importance last year due to coronavirus. People began to shop conveniently from the comforts of their homes and have the ordered goods delivered at their doorsteps. The benefits that online shopping provides to consumers are set to propel the e-commerce market in the future as well. According to a report by IMARC, the global e-commerce market is set to witness a CAGR of about 16% from 2021 to 2026.

Retailers are utilizing IoT to improve in-store experiences for customers as well. Through connected devices and location-based services, retailers provide personalized offers and discounts to their in-store visitors. IoT also makes it easier for visitors to navigate the store and find what they are looking for.

Besides that, IoT is also helping retailers in improving their supply chain management as well as logistics. Retailers can track the location of their products in real-time while they are being moved. IoT improves warehouse management as retailers can conveniently locate a product, thereby saving time. Even customers can be provided with real-time updates about their product delivery status. Since the products are being continuously monitored, IoT can also ensure that they are delivered to customers in the best of conditions.

Reflective of the myriad conveniences that IoT is bringing to the retail segment, it is no surprise that IoT in the retail market is expected to grow in the future. Per a report by Mordor Intelligence, the global IoT in the retail market is estimated to witness a CAGR of 11.3% from 2021 to 2026.

3 Stocks to Keep an Eye On

The retail segment is becoming increasingly reliant on IoT for improving their customer experience, and better manage logistics and supply chain, among others. This makes it a good time then to look at companies offering IoT, which can benefit from this potential. We have selected three such stocks that carry a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft offers Azure IoT Hub which provides retail solutions, among others. Azure IoT provides businesses with retail-specific application templates, advanced retail analytics, and so on.

Shares of Microsoft have risen 36.8% year to date and the company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 3.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 8%.

Intel designs, manufactures and sells essential technologies for the cloud, smart and connected devices for retail, industrial and consumer uses worldwide. The company provides IoT, including high-performance compute solutions for targeted verticals and embedded applications. In the second quarter of 2021, the company’s Internet of Things Group segment generated revenues of $1.31 billion, increasing 60.7% year over year.

Shares of Intel have risen 4.4% year to date and it currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings increased 3.7% over the past 60 days. The company’s expected earnings growth rate for the next five years is 7.5%.

Alphabet’s Google offers its Cloud IoT Core platform, which in combination with other services on Cloud IoT, provides a complete solution for IoT data in real time for improving operational efficiency. In fact, combined with machine learning, Google Cloud IoT delivers smarter solutions for retailers.

Shares of Alphabet have risen 56.8% year to date. The Zacks Consensus Estimate for its current-year earnings increased 14.3% over the past 60 days. The Zacks Rank #3 company’s expected earnings growth rate for the current year is 73.8%.

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