Cadence Design Systems, Inc. (CDNS) in San Jose, Calif., offers software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. It provides functional verification services, including hardware emulation and prototyping. The company's shares have gained 19% in price over the past nine months to close yesterday's trading session at $150.53.
The company reported stable revenue and earnings growth in its last quarter and intends to deliver greater shareholder returns in the coming months by capitalizing on industry trends and design activities in semiconductor and system companies.
In addition, this month CDNS was honored with a TSMC Open Innovation Platform (OIP) Ecosystem Forum Customers' Choice award for a paper titled "Integrated Platform for 3D-IC Design," which was delivered at the TSMC 2021 North America OIP Ecosystem Forum.
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Here's what could shape CDNS' performance in the near term:
Strategic Collaboration
Last month, CDNS and Dassault Systèmes announced a strategic partnership to provide integrated, next-generation solutions for developing high-performance electronic systems to enterprise customers in a variety of vertical markets, including high tech, transportation and mobility, industrial equipment, aerospace and defense, and healthcare. Dassault Systèmes' 3DEXPERIENCE and Cadence Allegro platforms have been merged to provide a single solution that allows enterprises to grasp multidisciplinary modeling, simulation, and optimization of complex, networked electronic systems. With this, customers can now speed their end-to-end system development process while optimizing their design for performance, reliability, manufacturability, supply resilience, compliance, and cost with this new interdisciplinary solution.
Robust Financials
During the fourth quarter, ended Jan. 01, 2022, CDNS' total revenue increased marginally year-over-year to $773.03 million. Its operating income increased 5.8% year-over-year to $195.68 million. The company's non-GAAP net income came in at $227.37 million, while its non-GAAP EPS amounted to $0.82.
Strong Profitability
CDNS' 23.4 trailing-12-months net income margin is 281.1% higher than the 6.1% industry average. Also, its ROC, gross profit margin and ROA are 213.7%, 81.1%, and 312% higher than the respective industry averages. And its $1.10 billion in cash from operations is 1037.8% higher than the $96.77 million industry average.
Impressive Growth Prospects
The Street expects CDNS' revenues and EPS to rise 11% and 15.2%, respectively, year-over-year to $3.32 billion and $3.79 in its fiscal year 2022. In addition, CDNS' EPS is expected to rise at a 15.4% CAGR over the next five years. Moreover, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.
Consensus Rating and Price Target Indicate Potential Upside
Of the eight Wall Street analysts that rated CDNS, six rated it Buy, and one rated it Hold. The 12-month median price target of $190.13 indicates a 26.3% potential upside. The price targets range from a low of $175.00 to a high of $211.00.
POWR Ratings Reflect Solid Prospects
CDNS has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. CDNS has an A grade for Quality and a B for Sentiment. CDNS' solid earnings and revenue growth potential is consistent with the Quality grade. In addition, the analyst's favorable rating and price targets are in sync with the Sentiment grade.
Among the 165 stocks in the Software – Application industry, CDNS is ranked #26.
Beyond what I stated above, we have graded CDNS for Growth, Value, Stability, and Momentum. Get all CDNS ratings here.
Bottom Line
With an accelerated Intelligent System Design strategy, introducing over a dozen significant innovative products, and making key strategic acquisitions, the company has witnessed robust growth across its business segments. In addition, considering the favorable analysts' price targets and its fundamental strength, the stock should soar higher in price in the coming months. So, we think the stock could be a great bet now.
How Does Cadence Design Systems Inc. (CDNS) Stack Up Against its Peers?
CDNS has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: SS&C Technologies Holdings Inc. (SSNC), Rimini Street Inc. (RMNI), and SAP SE ADS (SAP).
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CDNS shares were unchanged in premarket trading Wednesday. Year-to-date, CDNS has declined -19.22%, versus a -9.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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