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Cadence Design and Hasbro have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – February 23, 2024 – Zacks Equity Research shares Cadence Design Systems, Inc. (CDNS - Free Report) as the Bull of the Day and Hasbro, Inc. (HAS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Gencor Industries, Inc. (GENC - Free Report) , CSP Inc. (CSPI - Free Report) and M-tron Industries (MPTI - Free Report) .
Cadence Design Systems, Inc. stock provides investors the chance to buy into the booming world of AI and semiconductors. More importantly, Cadence is poised to benefit from the expansion of AI and beyond no matter who the near-term and long-term winners are.
Cadence’s modeling and computational software helps companies design chips and other vital technologies. Cadence isn’t a Magnificent 7 stock, but it works with Nvidia and it has crushed the other six of those tech titans during the last decade, with CDNS up 1,900%. Cadence also topped our Q4 estimates earlier this month and provided solid guidance.
Turning “Concepts into Reality”
Cadence’s modeling and computational software is used to design semiconductors and other highly complex technologies. The firm’s tagline is helping “turn design concepts into reality.” Cadence is part of the broader electronic design automation segment that’s growing more crucial as chips get smaller.
Cadence and the electronic design automation field empower companies such as Nvidia and many others by providing them with the ability to simulate chips before they are made. The growing complexity of semiconductors needed for AI, hyperscale computing, and beyond have transformed Cadence into an invaluable partner for many firms and a key cog in the broader tech and chip ecosystem.
Cadence boasts Nvidia as a customer because the GPU and AI chip powerhouse loves its simulation capabilities. The intelligent system design powerhouse might become even more important as everyone else races to catch Nvidia and design ever-more complex and microscopic chips in the sub-5 nanometer space.
Growth and Outlook
Cadence is one of the few major players in the vital electronic design automation world. Cadence’s fiscal 2023 revenue climbed by 15% to help boost its adjusted earnings by 20%. Cadence also topped our Q4 sales estimate on February 12 and it beat on the bottom line once again, having now surpassed our EPS estimates for over five years running.
Cadence’s revenue benefited from higher customer demand amid robust design activity and strong operational execution. CDNS ended 2023 with a record backlog of $6 billion and current remaining performance obligations of $3.2 billion. CDNS has also expanded its well-established partnerships with the likes of Nvidia and Arm.
Cadence provided solid 2024 guidance as it grows alongside “secular trends of digital transformation, hyperscale computing and autonomous driving, all bolstered by an AI super-cycle, continue to fuel strong broad-based design activity,” CEO Anirudh Devgan said on its fourth quarter earnings call. “We continue successfully executing to our Intelligent System Design strategy, that triples our TAM (total addressable market) opportunity while greatly expanding our portfolio.”
Cadence is projected to post 12% higher sales growth in FY24 and then boost its top line by another 12% in FY25 to reach $5.15 billion.
Meanwhile, its adjusted earnings are projected to climb 14% this year and 18% in fiscal 2025. Cadence’s FY25 earnings estimate has popped by 6% since its Q4 release to help it land a Zacks Rank #1 (Strong Buy) right now and continue its notable stretch of upward earnings revisions.
Performance and Technical Levels
Cadence stock is up 1,900% in the last 10 years vs. tech’s 275%. This run helped CDNS rather easily outpace Apple, Amazon, Alphabet, Microsoft, Meta, and Tesla—with TSLA’s 1,100% climb coming the closest of the bunch. CDNS has crushed all of these same Magnificent 7 stocks outside of Tesla during the last five years as well, up 435%.
Cadence has surged by nearly 60% in the past year, with it up 31% in the last six months vs. Tech’s 17%. Cadence climbed again on Thursday on the back of Nvidia’s impressive quarter. Despite the strong performance, CDNS still trades below its early February peaks and its average Zacks price target.
CDNS rebounded back above its 21-day moving average again on Thursday. Yet it remains below overbought RSI levels on both one-year and 10-year timeframes.
Valuation
Cadence is hardly a value stock, trading at 58.9X forward 12-month earnings vs. Tech’s 25.9X.
That said, CDNS trades at a 20% discount to its five-year highs and not too far above its median, highlighting that Wall Street has been very willing to pay up for Cadence. On the PEG ratio front, which accounts for its longer-term EPS growth outlook, CDNS trades at a 42% discount to its highs and below its five-year median.
Bottom Line
Cadence’s modeling and computational software is expanding alongside complex chips, AI, and other booming areas of tech.
CDNS appears to be worth considering as an investment in advanced semiconductors and artificial intelligence without having to predict if Nvidia ends up at the top of the AI pile down the road or wager on more unknown and unproven firms.
Hasbro, Inc. fell short of both our fourth quarter earnings and revenue estimates on February 13. The toy maker provided dim guidance, extending its streak of downward earnings revisions.
Hasbro’s Quick Story
Hasbro is a toy and game company with a brand portfolio that features Play-Doh, Transformers, Monopoly, the rights to make Star Wars and Marvel toys, and much more, including Magic: The Gathering. Hasbro has been a staple of the industry for years and likely will be going forward.
The Rhode Island-based firm posted back-to-back years of double-digit top line growth in 2020 and 2021, which was always going to be difficult to compete against for the toy maker.
The company then announced in August that it would sell its eOne film and TV unit to Lionsgate for $500 million.
Hasbro said that the deal, which closed in December 2023, would be used to “retire a minimum of $400 million of floating rate debt by the end of the year, and for other general corporate purposes.” Hasbro acquired eOne in 2019 for $4 billion.
Recent Performance and Outlook
Hasbro is attempting to get back to its core business after its sales fell 9% in 2022 and 15% in 2023. The firm’s recent YoY decline came despite growth in the Wizards of the Coast and Digital Gaming segment (+10%), which was more than "offset by declines in the Consumer Products segment (-19%) and Entertainment segment (-31%)." Meanwhile, its adjusted earnings fell from $4.45 to $2.51 per share in 2023.
Looking ahead, Hasbro’s 2024 sales are projected to slide by 14%. The company’s adjusted earnings are projected to improve by 30% after tumbling in 2023 as it cuts costs where it can.
Still, its adjusted EPS outlook tumbled for both 2024 and 2025 after its mid-February release, extending a rough stretch of downward revisions (see nearby chart).
Bottom Line
Hasbro’s earnings revisions activity helps it land a Zacks Rank #5 (Strong Sell). Plus, its Toys - Games – Hobbies industry is in the bottom 12% of all Zacks industries. Meanwhile, Hasbro’s dividend payout ratio is reaching sky-high levels.
HAS stock is down around 9% over the last 10 years vs. the S&P 500’s 175% climb. Hasbro shares are currently trading below both their 50-week and 200-week moving averages. Investors might want to stay away from the stock for now or at least until it provides updated guidance next quarter.
Additional content:
Macro Themes Lead to Micro Ideas
One common strategy among investors is “thematic” investing, whereby investors identify major trends occurring in the economy which look sustainable. This is also referred to as “top-down” investing. The line of thinking continues with determining which specific companies should benefit from these trends. There are more obvious, consumer/retail trends like yoga pants or Electric Vehicles.
But there are also less obvious trends which we highlight here. Additionally, there are Microcap companies, somewhat lost in the complex ecosystem of commerce, that will also benefit but are not as well known by investors due to their lack of attention from Wall Street.
The themes we’ve identified include Federal infrastructure spending, cyber security, and increased global military spending. The dilapidated state of our country’s infrastructure is well documented and includes highways, bridges, airports, etc. Recall that the IIJA (Infrastructure Investment and Jobs Act) was passed into law in November of 2021 with a 5- year authorization period extending into 2026.
As Brookings’ analysis concludes, another $346.8 B or nearly 59% of the original allocation to Transportation has yet to be awarded. It appears that there is still a decent runway for this funding to flow directly into shovel-ready projects via direct Federal funding or via Federal dollars into State coffers.
Gencor Industries, Inc. is one microcap that we believe should benefit from this infrastructure spending. The company manufactures asphalt plant equipment sold into the highway construction industry. The company recently reported a 44% increase in backlog as well as a balance sheet containing $104.8 m of cash and marketable securities with $0 debt. The greatest risk factor is the timing of backlog conversion to sales which could result in lumpy sales.
Another theme which continues to be top of mind is cyber security. The data breaches appear to be becoming more frequent and larger in scope highlighted by record setting ransom payments. And there are more worries around critical infrastructure attacks like the nation’s electric grid.
Grandview Research projects that the global cyber security market will grow at a CAGR of 12.3% through 2030. It should also be noted that the SEC adopted a new rule in July of 2023 requiring companies to disclose any material cyber security incidents so a more heightened awareness around cyber security as it relates to brand preservation may ensue.
We believe CSP Inc. is a microcap name that could benefit from these industry tailwinds. The company’s higher margin software business serving the critical infrastructure of industries or OT (Operational Technology) like pharma and utilities is gaining momentum and represents over 10% of revenue.
Some deals were pushed out of the December quarter resulting in a YOY sales decline but are expected to land this quarter. The biggest risk factor is the intense competition in the cyber security software space and ongoing worries that a major tech player could develop their own software.
Lastly, and unfortunately, we note the growing level of military conflicts around the world. While US defense spending remains robust, highlighted by the recent $886 B defense policy bill, we find recent NATO spending and body language especially remarkable. Eighteen of the member states have pledged spending 2% of GDP in 2024 on defense vs. only seven states back in 2022.
We believe M-tron Industries should benefit from this increased military spending. The company manufactures the electronic components focused on frequency and spectrum that are supplied to the large US defense companies which ultimately contract with the US DOD and foreign allies. Backlog increased 14% YOY to $50.3 million and Gross margin has improved 1040 bps YOY to 42.8% due to efficiencies and the exit from low margin businesses.
The company has also launched on average 260 new products per year over the last 5 years and is now producing more $1 m revenue products. The main risk factor is the over-reliance on defense customers as defense/aerospace comprises 58% of revenue.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Cadence Design and Hasbro have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – February 23, 2024 – Zacks Equity Research shares Cadence Design Systems, Inc. (CDNS - Free Report) as the Bull of the Day and Hasbro, Inc. (HAS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Gencor Industries, Inc. (GENC - Free Report) , CSP Inc. (CSPI - Free Report) and M-tron Industries (MPTI - Free Report) .
Here is a synopsis of all five stocks.
Bull of the Day:
Cadence Design Systems, Inc. stock provides investors the chance to buy into the booming world of AI and semiconductors. More importantly, Cadence is poised to benefit from the expansion of AI and beyond no matter who the near-term and long-term winners are.
Cadence’s modeling and computational software helps companies design chips and other vital technologies. Cadence isn’t a Magnificent 7 stock, but it works with Nvidia and it has crushed the other six of those tech titans during the last decade, with CDNS up 1,900%. Cadence also topped our Q4 estimates earlier this month and provided solid guidance.
Turning “Concepts into Reality”
Cadence’s modeling and computational software is used to design semiconductors and other highly complex technologies. The firm’s tagline is helping “turn design concepts into reality.” Cadence is part of the broader electronic design automation segment that’s growing more crucial as chips get smaller.
Cadence and the electronic design automation field empower companies such as Nvidia and many others by providing them with the ability to simulate chips before they are made. The growing complexity of semiconductors needed for AI, hyperscale computing, and beyond have transformed Cadence into an invaluable partner for many firms and a key cog in the broader tech and chip ecosystem.
Cadence boasts Nvidia as a customer because the GPU and AI chip powerhouse loves its simulation capabilities. The intelligent system design powerhouse might become even more important as everyone else races to catch Nvidia and design ever-more complex and microscopic chips in the sub-5 nanometer space.
Growth and Outlook
Cadence is one of the few major players in the vital electronic design automation world. Cadence’s fiscal 2023 revenue climbed by 15% to help boost its adjusted earnings by 20%. Cadence also topped our Q4 sales estimate on February 12 and it beat on the bottom line once again, having now surpassed our EPS estimates for over five years running.
Cadence’s revenue benefited from higher customer demand amid robust design activity and strong operational execution. CDNS ended 2023 with a record backlog of $6 billion and current remaining performance obligations of $3.2 billion. CDNS has also expanded its well-established partnerships with the likes of Nvidia and Arm.
Cadence provided solid 2024 guidance as it grows alongside “secular trends of digital transformation, hyperscale computing and autonomous driving, all bolstered by an AI super-cycle, continue to fuel strong broad-based design activity,” CEO Anirudh Devgan said on its fourth quarter earnings call. “We continue successfully executing to our Intelligent System Design strategy, that triples our TAM (total addressable market) opportunity while greatly expanding our portfolio.”
Cadence is projected to post 12% higher sales growth in FY24 and then boost its top line by another 12% in FY25 to reach $5.15 billion.
Meanwhile, its adjusted earnings are projected to climb 14% this year and 18% in fiscal 2025. Cadence’s FY25 earnings estimate has popped by 6% since its Q4 release to help it land a Zacks Rank #1 (Strong Buy) right now and continue its notable stretch of upward earnings revisions.
Performance and Technical Levels
Cadence stock is up 1,900% in the last 10 years vs. tech’s 275%. This run helped CDNS rather easily outpace Apple, Amazon, Alphabet, Microsoft, Meta, and Tesla—with TSLA’s 1,100% climb coming the closest of the bunch. CDNS has crushed all of these same Magnificent 7 stocks outside of Tesla during the last five years as well, up 435%.
Cadence has surged by nearly 60% in the past year, with it up 31% in the last six months vs. Tech’s 17%. Cadence climbed again on Thursday on the back of Nvidia’s impressive quarter. Despite the strong performance, CDNS still trades below its early February peaks and its average Zacks price target.
CDNS rebounded back above its 21-day moving average again on Thursday. Yet it remains below overbought RSI levels on both one-year and 10-year timeframes.
Valuation
Cadence is hardly a value stock, trading at 58.9X forward 12-month earnings vs. Tech’s 25.9X.
That said, CDNS trades at a 20% discount to its five-year highs and not too far above its median, highlighting that Wall Street has been very willing to pay up for Cadence. On the PEG ratio front, which accounts for its longer-term EPS growth outlook, CDNS trades at a 42% discount to its highs and below its five-year median.
Bottom Line
Cadence’s modeling and computational software is expanding alongside complex chips, AI, and other booming areas of tech.
CDNS appears to be worth considering as an investment in advanced semiconductors and artificial intelligence without having to predict if Nvidia ends up at the top of the AI pile down the road or wager on more unknown and unproven firms.
Bear of the Day:
Hasbro, Inc. fell short of both our fourth quarter earnings and revenue estimates on February 13. The toy maker provided dim guidance, extending its streak of downward earnings revisions.
Hasbro’s Quick Story
Hasbro is a toy and game company with a brand portfolio that features Play-Doh, Transformers, Monopoly, the rights to make Star Wars and Marvel toys, and much more, including Magic: The Gathering. Hasbro has been a staple of the industry for years and likely will be going forward.
The Rhode Island-based firm posted back-to-back years of double-digit top line growth in 2020 and 2021, which was always going to be difficult to compete against for the toy maker.
The company then announced in August that it would sell its eOne film and TV unit to Lionsgate for $500 million.
Hasbro said that the deal, which closed in December 2023, would be used to “retire a minimum of $400 million of floating rate debt by the end of the year, and for other general corporate purposes.” Hasbro acquired eOne in 2019 for $4 billion.
Recent Performance and Outlook
Hasbro is attempting to get back to its core business after its sales fell 9% in 2022 and 15% in 2023. The firm’s recent YoY decline came despite growth in the Wizards of the Coast and Digital Gaming segment (+10%), which was more than "offset by declines in the Consumer Products segment (-19%) and Entertainment segment (-31%)." Meanwhile, its adjusted earnings fell from $4.45 to $2.51 per share in 2023.
Looking ahead, Hasbro’s 2024 sales are projected to slide by 14%. The company’s adjusted earnings are projected to improve by 30% after tumbling in 2023 as it cuts costs where it can.
Still, its adjusted EPS outlook tumbled for both 2024 and 2025 after its mid-February release, extending a rough stretch of downward revisions (see nearby chart).
Bottom Line
Hasbro’s earnings revisions activity helps it land a Zacks Rank #5 (Strong Sell). Plus, its Toys - Games – Hobbies industry is in the bottom 12% of all Zacks industries. Meanwhile, Hasbro’s dividend payout ratio is reaching sky-high levels.
HAS stock is down around 9% over the last 10 years vs. the S&P 500’s 175% climb. Hasbro shares are currently trading below both their 50-week and 200-week moving averages. Investors might want to stay away from the stock for now or at least until it provides updated guidance next quarter.
Additional content:
Macro Themes Lead to Micro Ideas
One common strategy among investors is “thematic” investing, whereby investors identify major trends occurring in the economy which look sustainable. This is also referred to as “top-down” investing. The line of thinking continues with determining which specific companies should benefit from these trends. There are more obvious, consumer/retail trends like yoga pants or Electric Vehicles.
But there are also less obvious trends which we highlight here. Additionally, there are Microcap companies, somewhat lost in the complex ecosystem of commerce, that will also benefit but are not as well known by investors due to their lack of attention from Wall Street.
The themes we’ve identified include Federal infrastructure spending, cyber security, and increased global military spending. The dilapidated state of our country’s infrastructure is well documented and includes highways, bridges, airports, etc. Recall that the IIJA (Infrastructure Investment and Jobs Act) was passed into law in November of 2021 with a 5- year authorization period extending into 2026.
As Brookings’ analysis concludes, another $346.8 B or nearly 59% of the original allocation to Transportation has yet to be awarded. It appears that there is still a decent runway for this funding to flow directly into shovel-ready projects via direct Federal funding or via Federal dollars into State coffers.
Gencor Industries, Inc. is one microcap that we believe should benefit from this infrastructure spending. The company manufactures asphalt plant equipment sold into the highway construction industry. The company recently reported a 44% increase in backlog as well as a balance sheet containing $104.8 m of cash and marketable securities with $0 debt. The greatest risk factor is the timing of backlog conversion to sales which could result in lumpy sales.
Another theme which continues to be top of mind is cyber security. The data breaches appear to be becoming more frequent and larger in scope highlighted by record setting ransom payments. And there are more worries around critical infrastructure attacks like the nation’s electric grid.
Grandview Research projects that the global cyber security market will grow at a CAGR of 12.3% through 2030. It should also be noted that the SEC adopted a new rule in July of 2023 requiring companies to disclose any material cyber security incidents so a more heightened awareness around cyber security as it relates to brand preservation may ensue.
We believe CSP Inc. is a microcap name that could benefit from these industry tailwinds. The company’s higher margin software business serving the critical infrastructure of industries or OT (Operational Technology) like pharma and utilities is gaining momentum and represents over 10% of revenue.
Some deals were pushed out of the December quarter resulting in a YOY sales decline but are expected to land this quarter. The biggest risk factor is the intense competition in the cyber security software space and ongoing worries that a major tech player could develop their own software.
Lastly, and unfortunately, we note the growing level of military conflicts around the world. While US defense spending remains robust, highlighted by the recent $886 B defense policy bill, we find recent NATO spending and body language especially remarkable. Eighteen of the member states have pledged spending 2% of GDP in 2024 on defense vs. only seven states back in 2022.
We believe M-tron Industries should benefit from this increased military spending. The company manufactures the electronic components focused on frequency and spectrum that are supplied to the large US defense companies which ultimately contract with the US DOD and foreign allies. Backlog increased 14% YOY to $50.3 million and Gross margin has improved 1040 bps YOY to 42.8% due to efficiencies and the exit from low margin businesses.
The company has also launched on average 260 new products per year over the last 5 years and is now producing more $1 m revenue products. The main risk factor is the over-reliance on defense customers as defense/aerospace comprises 58% of revenue.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks Investment Research
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.