Cadence Design Systems, Inc. (CDNS - Free Report) is one technology stock that continues to exhibit strength in several areas. In fact, the stock is a lucrative investment option at the moment. Shares of Cadence Design have gained 17.8% over the past three months, outperforming the 8.9% growth of its industry.
Earnings estimates for Cadence Design have exhibited an uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s current-year earnings has moved up 6 cents to $1.63 per share over the past 60 days. Let us delve deeper and analyze the factors that make this Zacks Rank #1 (Strong Buy) stock a hot pick. You can see the complete list of today’s Zacks #1 Rank stocks here.
What Makes the Stock an Attractive Pick?
Q1 Results, Upbeat Guidance
Cadence delivered strong results for first-quarter 2018. Both the top and bottom lines fared better than the respective Zacks Consensus Estimate as well as management’s guided ranges. Notably, the company has adopted the new revenue rules of ASC 606 and accordingly incorporated the same while reporting first-quarter results.
Cadence reported non-GAAP earnings of 40 cents per share for the first quarter, surpassing the Zacks Consensus Estimate by a couple of cents.
Revenues increased 8.5% year over year to $517.3 million, beating the Zacks Consensus Estimate of $506 million.
Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base fueled overall year-over-year growth. The company has also witnessed significant demand from aerospace and defense sectors.
The company raised 2018 outlook expecting first-quarter momentum to sustain. Revenues are now projected to be in the range of $2.055-$2.085 billion, up from $2.015-$2.055 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.57-$1.65 per share, raised from previous band of $1.50-$1.60.
Strong Growth Prospects
The company’s Zacks Consensus Estimate for fiscal 2018 earnings of $1.63 reflects year-over-year growth of 16.4%. Moreover, earnings are expected to register 8.4% improvement in fiscal 2019. Similarly, Zacks Consensus Estimate for fiscal 2018 revenues of $2.08 reflects year-over-year growth of 7%.
The stock has a long-term expected earnings per share growth rate of 12%.
Valuation Looks Rational
The company currently has a trailing 12-month Price/Earnings (P/E) ratio of 27.76. This is quite low compared with the current P/E for the industry that is pegged at 507.60. Its lower-than-market positioning indicates that there is room for an upside in the quarters ahead.
Cadence offers products and tools that help customers to design electronic products. Robust adoption of company’s digital and signoff, custom and analog, and IP solutions along with an expanding customer base remains a positive. Significant demand from aerospace and defense sectors is a key catalyst. Further, increasing investments on emerging trends like Internet-of-things (IoT), augmented and virtual reality (AR/VR) and autonomous vehicle sub-systems present significant growth opportunity for the company, going forward. Reduction in long-term debt and improvement in cash balance are tailwinds.
The company outpaced the Zacks Consensus Estimate in three of the trailing four quarters, recording a positive average earnings surprise of 2.8%.
We expect the trend to continue and drive the overall financial performance of this stock.
Some other top-ranked stocks in the technology sector are NVIDIA Corp. (NVDA - Free Report) , Western Digital Corporation (WDC - Free Report) and Seagate Technology PLC (STX - Free Report) , all sporting a Zacks Rank #1.
Long-term earnings estimates for NVIDIA, Western Digital and Seagate are currently pegged at 10.25%, 19% and 18.9%, respectively.
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