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Here's Why Cadence (CDNS) is an Attractive Pick Right Now

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Cadence Design Systems (CDNS - Free Report) is one stock investors may consider adding to their portfolio to combat the highly volatile market environment and make some gains from its upside potential. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wall Street has been witnessing high volatility since the beginning of 2022, due to the pandemic and supply chain woes, rising inflationary concerns, increasing crude oil prices and a tougher Fed policy. Also, the ongoing Russia-Ukraine war has made investors apprehensive about the global economic recovery.

The macroeconomic and geopolitical uncertainties are likely to continue weighing on investors’ sentiments, resulting in more volatility in the U.S. equity market.


Keep an Eye on CDNS

Shares of Cadence have gained 13.9% in the past year against the Zacks Computer-Software industry’s decline of 12.2%. The stock is down 22.6% from its 52-week high level of $192.70 reached on Dec 28, 2021, making it more affordable for investors.

Apart from having solid fundamentals, Cadence has the favorable combination of a Growth Score of A and a Zacks Rank #2. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities. 

Cadence has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 10.6%. The stock has an impressive long-term earnings per share (EPS) growth expectation of 17%.

The Zacks Consensus Estimate of $3.94 per share for 2022 earnings suggests growth of approximately 5.6% from the year-ago period. For 2023, the consensus mark for earnings is pegged at $4.32, indicating a year-over-year increase of 4.1%.

In the last reported quarter, Cadence Design Systems posted revenues of $902 million surpassed the Zacks Consensus Estimate by 5% and increased 23% on a year-over-year basis. The top line benefited from continued strength across all segments driven by broad-based demand for its products. 

Driven by strong first-quarter results, the company raised its outlook for 2022. Revenues for the full year are now projected in the range of $3.395-$3.435 billion compared with the earlier guidance of $3.32-$3.38 billion.

Strong Fundamental Drivers

Based in San Jose, CA, Cadence offers products and tools that help customers to design electronic products. 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.

Cadence’s performance is being driven by strength across all segments owing to healthy demand for the company’s diversified product portfolio. Acceleration in chip design activity and increasing system design complexity drive demand for Cadence’s system design and verification solutions among semiconductor companies.

Deployment of 5G, increasing usage of hyperscale computing and emerging technologies like Artificial Intelligence and machine learning are fueling digital transformation across various end markets and boosting demand for advanced semiconductors chips.

Frequent product launches are expected to help the company sustain top-line growth. In 2021, Cadence introduced 13 new products, including Cadence Helium Virtual and Hybrid Studio and Allegro X.

Synergies from the Integrand and AWR buyouts and the recent acquisitions of Pointwise and NUMECA are contributing to the top line.

Other Stocks to Consider

A few other top-ranked stocks from the broader technology sector worth consideration are InterDigital (IDCC - Free Report) , Avnet (AVT - Free Report) and Vishay Intertechnology (VSH - Free Report) While Avnet and InterDIgital sport a Zacks Rank #1, Vishay Intertechnology carries a Zacks Rank #2.

The Zacks Consensus Estimate for Vishay Intertechnology’s 2022 earnings is pegged at $2.68 per share, rising 10.3% in the past 60 days. The long-term earnings growth rate is anticipated to be 22.7%.

Vishay Intertechnology’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 4.96%. Shares of VSH have declined 16.2% in the past year.

The Zacks Consensus Estimate for InterDigital 2022 earnings is pegged at $3.28 per share, up 5.1% in the past 60 days. IDCC’s long-term earnings growth rate is pegged at 15%.
InterDigital’s earnings beat the Zacks Consensus Estimate in all the preceding four quarters, with the average being 141.1%. Shares of IDCC have lost 20.1% of their value in the past year.

The Zacks Consensus Estimate for Avnet’s fiscal 2022 earnings is pegged at $6.83 per share, rising 20.5% in the past 60 days. The long-term earnings growth rate is anticipated to be 37.2%.

Avnet’s earnings beat the Zacks Consensus Estimate in all of the last four quarters, the average being 21.22%. Shares of Avnet have grown 8.9% in the past year.