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Here's Why Investors Should Consider Buying Cadence (CDNS)
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Cadence Design Systems (CDNS - Free Report) is well-positioned to benefit from continued demand for the company’s diversified product portfolio and strategic collaborations. The optimism is led by the company's solid fourth-quarter 2022 performance, along with growing momentum across all business segments.
Cadence’s 2023 and 2024 earnings are expected to improve 13.1% and 9.4%, respectively, year over year. Revenues are anticipated to rise 13.3% and 6.5% in 2023 and 2024, respectively.
CDNS stock is down 4.2% from its 52-week high level of $202.96 on Feb 15, 2022, making it more affordable for investors. Shares of Cadence have gained 43.8% in the past year against the Zacks Computer-Software industry’s decline of 8.4%.
Image Source: Zacks Investment Research
Let’s look at the factors that make the stock an attractive pick:
Strong Q4 Results: Cadence posted solid fourth-quarter earnings and revenue, rising year over year and beating the Zacks Consensus Estimate. The top line benefited from continued strength across all segments driven by higher demand for its products. The company’s Palladium and Protium platform is gaining traction among clients in the hyperscale, HPC and auto EV segments.
Cadence has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 10.5%.
Cadence witnessed earnings growth of 27.5% in the past five years, higher than the industry average of 11%. The stock has impressive long-term earnings per share growth expectation of 19.1%, higher than the industry average of 13.1%.
Growth Prospects: 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 integrated circuits (ICs). Its design intellectual properties are directly integrated into the ICs.
The company is likely to benefit from increased spending by enterprises on emerging categories like IoT and AR/VR. Per data from the Mordor Intelligence report, the worldwide IoT market is likely to witness a CAGR of 10.53% between 2022 and 2027.
Also, digitalization is fueling growth for hyperscale computing and 5G development. The company is expanding its digital software business by developing front-end Genus and Joules tools and signoff products like Tempus and Quantus.
The company also has a steady share repurchase program. The company repurchased shares worth approximately $300 million in the fourth quarter. In 2022, the company repurchased shares worth $1.05 billion.
The company expects to repurchase shares for approximately $125 million in the first quarter of 2023.
Strategic Collaborations & Product Launches: Recently, the company released 13 new Verification IP (VIP) solutions to help engineers verify their designs in accordance with the latest industry standards. The VIP solutions include the company's TripleCheck technology, which provides users with a specification-compliant verification plan linked to comprehensive coverage models and a test suite to ensure compliance with the interface specification.
Prior to that, the company announced that Global Unichip successfully used Cadence digital solutions to deliver an advanced HPC design and a CPU design. The HPC design was created using the Cadence Innovus Implementation System and reached clock speeds of 3.16GHz with 3.5 million instances on TSMC's N3 process.
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.
Other Stocks to Consider
Some other top-ranked stocks in the broader technology space are Arista Networks (ANET - Free Report) , Perion Network (PERI - Free Report) and Pegasystems (PEGA - Free Report) , each presently sport a Zacks Rank #1.
The Zacks Consensus Estimate for Arista Networks 2023 earnings is pegged at $5.76 per share, rising 11% in the past 60 days. The long-term earnings growth rate is anticipated to be 14.2%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.2%. Shares of ANET have increased 10.7% in the past year.
The Zacks Consensus Estimate for Perion’s 2023 earnings is pegged at $2.69 per share, rising 16% in the past 60 days. The long-term earnings growth rate is anticipated to be 25%.
Perion’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 31.7%. Shares of PERI have increased 39.1% in the past year.
The Zacks Consensus Estimate for Pegasystems 2023 earnings is pegged at 84 cents per share, rising 35.5% in the past 60 days.
Pegasystems earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being 11.2%. Shares of the company have declined 39.4% in the past year.
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Here's Why Investors Should Consider Buying Cadence (CDNS)
Cadence Design Systems (CDNS - Free Report) is well-positioned to benefit from continued demand for the company’s diversified product portfolio and strategic collaborations. The optimism is led by the company's solid fourth-quarter 2022 performance, along with growing momentum across all business segments.
CDNS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cadence’s 2023 and 2024 earnings are expected to improve 13.1% and 9.4%, respectively, year over year. Revenues are anticipated to rise 13.3% and 6.5% in 2023 and 2024, respectively.
CDNS stock is down 4.2% from its 52-week high level of $202.96 on Feb 15, 2022, making it more affordable for investors. Shares of Cadence have gained 43.8% in the past year against the Zacks Computer-Software industry’s decline of 8.4%.
Image Source: Zacks Investment Research
Let’s look at the factors that make the stock an attractive pick:
Strong Q4 Results: Cadence posted solid fourth-quarter earnings and revenue, rising year over year and beating the Zacks Consensus Estimate. The top line benefited from continued strength across all segments driven by higher demand for its products. The company’s Palladium and Protium platform is gaining traction among clients in the hyperscale, HPC and auto EV segments.
Cadence has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 10.5%.
Cadence witnessed earnings growth of 27.5% in the past five years, higher than the industry average of 11%. The stock has impressive long-term earnings per share growth expectation of 19.1%, higher than the industry average of 13.1%.
Growth Prospects: 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 integrated circuits (ICs). Its design intellectual properties are directly integrated into the ICs.
The company is likely to benefit from increased spending by enterprises on emerging categories like IoT and AR/VR. Per data from the Mordor Intelligence report, the worldwide IoT market is likely to witness a CAGR of 10.53% between 2022 and 2027.
Also, digitalization is fueling growth for hyperscale computing and 5G development. The company is expanding its digital software business by developing front-end Genus and Joules tools and signoff products like Tempus and Quantus.
The company also has a steady share repurchase program. The company repurchased shares worth approximately $300 million in the fourth quarter. In 2022, the company repurchased shares worth $1.05 billion.
The company expects to repurchase shares for approximately $125 million in the first quarter of 2023.
Strategic Collaborations & Product Launches: Recently, the company released 13 new Verification IP (VIP) solutions to help engineers verify their designs in accordance with the latest industry standards. The VIP solutions include the company's TripleCheck technology, which provides users with a specification-compliant verification plan linked to comprehensive coverage models and a test suite to ensure compliance with the interface specification.
Prior to that, the company announced that Global Unichip successfully used Cadence digital solutions to deliver an advanced HPC design and a CPU design. The HPC design was created using the Cadence Innovus Implementation System and reached clock speeds of 3.16GHz with 3.5 million instances on TSMC's N3 process.
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.
Other Stocks to Consider
Some other top-ranked stocks in the broader technology space are Arista Networks (ANET - Free Report) , Perion Network (PERI - Free Report) and Pegasystems (PEGA - Free Report) , each presently sport a Zacks Rank #1.
The Zacks Consensus Estimate for Arista Networks 2023 earnings is pegged at $5.76 per share, rising 11% in the past 60 days. The long-term earnings growth rate is anticipated to be 14.2%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.2%. Shares of ANET have increased 10.7% in the past year.
The Zacks Consensus Estimate for Perion’s 2023 earnings is pegged at $2.69 per share, rising 16% in the past 60 days. The long-term earnings growth rate is anticipated to be 25%.
Perion’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 31.7%. Shares of PERI have increased 39.1% in the past year.
The Zacks Consensus Estimate for Pegasystems 2023 earnings is pegged at 84 cents per share, rising 35.5% in the past 60 days.
Pegasystems earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being 11.2%. Shares of the company have declined 39.4% in the past year.