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Cadence (CDNS) Stock Gains 40.7% YTD: Will the Uptrend Last?
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Cadence Design Systems (CDNS - Free Report) is witnessing strong momentum, with shares having rallied 40.7% year to date compared with 35% and 17.6% growth of the sub-industry and S&P Composite, respectively.
Cadence’s stock price is being driven by healthy demand for the company’s diversified product portfolio across all segments.
CDNS recently reported robust results for second-quarter 2023. It delivered non-GAAP earnings of $1.22 per share, which topped the Zacks Consensus Estimate by 3.4% and gained 13% year over year. Revenues of $977 million surpassed the Zacks Consensus Estimate by 0.3% and rose 13.9% on a year-over-year basis. CDNS ended the quarter with a backlog of $5.3 billion.
Image Source: Zacks Investment Research
Management raised full-year guidance on the back of strong second-quarter results. It also highlighted increasing business opportunities presented by proliferation of Generative AI.
Cadence noted that customers are significantly increasing their R&D budget in AI-driven automation, which, in turn, is benefiting CDNS. Most of the generational trends like 5G, hyperscale computing and autonomous driving are being reinforced by the use of Generative AI. This is accelerating chip design activity and thereby creating plenty of business prospects for the company, added Cadence.
CDNS also stated that it has collaborated with Tesla for development of the latter’s Dojo AI supercomputer.
Revenues for 2023 are now projected in the range of $4.05-$4.09 billion. Earlier, management had anticipated revenues in the $4.03-$4.07 billion band. Non-GAAP earnings per share for 2023 are now expected to be between $5.05 and $5.11. Previously, non-GAAP earnings were suggested in the range of $4.96-$5.04 per share.
Apart from frequent product launches, momentum for existing products also augurs well. Among them, the Palladium and Protium (especially Z2 and X2) platforms are witnessing continued traction. CDNS won 14 new clients and 45 repeat orders in the second quarter. Most deal wins came from clients in the AI, hyperscale computing and automotive segments.
Moreover, a strong cash position bodes well as it can help CDNS to pursue strategic acquisitions and other investments in growth initiatives. Cadence had cash and cash equivalents of approximately $874 million. The long-term debt was $648.6 million as of Jun 30, 2023.
In the second quarter, it generated operating cash flow of $414 million. Free cash flow was $394 million. Strong cash flows help Cadence to continue shareholder-friendly initiatives.
The company repurchased shares worth approximately $265 million in the second quarter. In 2022, it repurchased shares worth $1.05 billion. Management hints at a share buyback program worth approximately $125 million in the third quarter of 2023.
However, higher costs related to R&D are likely to dent margins in the near term. Stiff competition and volatile macroeconomic conditions continue to be concerns for this Zacks Rank #3 (Hold) stock.
A Look at Estimates
Cadence’s earnings per share are expected to climb 19.2% and 12.6% on a year-over-year basis to $5.09 and $5.72 in 2023 and 2024, respectively. The Zacks Consensus Estimate for 2023 and 2024 earnings has improved 1.8% and 2.1%, respectively, in the past 60 days.
Revenues for 2023 and 2024 are projected to rise 14.5% and 10.1% to $4.08 billion and $4.49 billion, respectively.
The Zacks Consensus Estimate for Badger Meter’s 2023 earnings has gained 6.3% in the past 60 days to $2.86 per share. BMI’s earnings beat estimates in the last four quarters, the average surprise being 6.7%. Shares of BMI have surged 64.1% in the past year.
The Zacks Consensus Estimate for Salesforce’s fiscal 2024 earnings is pegged at $7.44 per share, up 0.3% in the past 60 days. The long-term earnings growth rate is anticipated to be 19.3%.
CRM’s earnings surpassed estimates in the last four quarters, the average beat being 15.5%. Shares of CRM have grown 9.2% in the past year.
The Zacks Consensus Estimate for Pegasystems’ 2023 earnings has improved 6.6% in the past 60 days to $1.46 per share. PEGA’s has a trailing four-quarter average earnings surprise of 166.2%. Shares of PEGA have jumped 12.5% in the past year.
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Cadence (CDNS) Stock Gains 40.7% YTD: Will the Uptrend Last?
Cadence Design Systems (CDNS - Free Report) is witnessing strong momentum, with shares having rallied 40.7% year to date compared with 35% and 17.6% growth of the sub-industry and S&P Composite, respectively.
Cadence’s stock price is being driven by healthy demand for the company’s diversified product portfolio across all segments.
CDNS recently reported robust results for second-quarter 2023. It delivered non-GAAP earnings of $1.22 per share, which topped the Zacks Consensus Estimate by 3.4% and gained 13% year over year. Revenues of $977 million surpassed the Zacks Consensus Estimate by 0.3% and rose 13.9% on a year-over-year basis. CDNS ended the quarter with a backlog of $5.3 billion.
Image Source: Zacks Investment Research
Management raised full-year guidance on the back of strong second-quarter results. It also highlighted increasing business opportunities presented by proliferation of Generative AI.
Cadence noted that customers are significantly increasing their R&D budget in AI-driven automation, which, in turn, is benefiting CDNS. Most of the generational trends like 5G, hyperscale computing and autonomous driving are being reinforced by the use of Generative AI. This is accelerating chip design activity and thereby creating plenty of business prospects for the company, added Cadence.
CDNS also stated that it has collaborated with Tesla for development of the latter’s Dojo AI supercomputer.
Revenues for 2023 are now projected in the range of $4.05-$4.09 billion. Earlier, management had anticipated revenues in the $4.03-$4.07 billion band.
Non-GAAP earnings per share for 2023 are now expected to be between $5.05 and $5.11. Previously, non-GAAP earnings were suggested in the range of $4.96-$5.04 per share.
Apart from frequent product launches, momentum for existing products also augurs well. Among them, the Palladium and Protium (especially Z2 and X2) platforms are witnessing continued traction. CDNS won 14 new clients and 45 repeat orders in the second quarter. Most deal wins came from clients in the AI, hyperscale computing and automotive segments.
Moreover, a strong cash position bodes well as it can help CDNS to pursue strategic acquisitions and other investments in growth initiatives. Cadence had cash and cash equivalents of approximately $874 million. The long-term debt was $648.6 million as of Jun 30, 2023.
In the second quarter, it generated operating cash flow of $414 million. Free cash flow was $394 million. Strong cash flows help Cadence to continue shareholder-friendly initiatives.
The company repurchased shares worth approximately $265 million in the second quarter. In 2022, it repurchased shares worth $1.05 billion. Management hints at a share buyback program worth approximately $125 million in the third quarter of 2023.
However, higher costs related to R&D are likely to dent margins in the near term. Stiff competition and volatile macroeconomic conditions continue to be concerns for this Zacks Rank #3 (Hold) stock.
A Look at Estimates
Cadence’s earnings per share are expected to climb 19.2% and 12.6% on a year-over-year basis to $5.09 and $5.72 in 2023 and 2024, respectively. The Zacks Consensus Estimate for 2023 and 2024 earnings has improved 1.8% and 2.1%, respectively, in the past 60 days.
Revenues for 2023 and 2024 are projected to rise 14.5% and 10.1% to $4.08 billion and $4.49 billion, respectively.
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Badger Meter (BMI - Free Report) , Salesforce (CRM - Free Report) and Pegasystems (PEGA - Free Report) . While Badger Meter sports a Zacks Rank #1 (Strong Buy), Salesforce and Pegasystems carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Badger Meter’s 2023 earnings has gained 6.3% in the past 60 days to $2.86 per share. BMI’s earnings beat estimates in the last four quarters, the average surprise being 6.7%. Shares of BMI have surged 64.1% in the past year.
The Zacks Consensus Estimate for Salesforce’s fiscal 2024 earnings is pegged at $7.44 per share, up 0.3% in the past 60 days. The long-term earnings growth rate is anticipated to be 19.3%.
CRM’s earnings surpassed estimates in the last four quarters, the average beat being 15.5%. Shares of CRM have grown 9.2% in the past year.
The Zacks Consensus Estimate for Pegasystems’ 2023 earnings has improved 6.6% in the past 60 days to $1.46 per share. PEGA’s has a trailing four-quarter average earnings surprise of 166.2%. Shares of PEGA have jumped 12.5% in the past year.