/Cadence%20Design%20Systems%2C%20Inc_%20logo%20on%20building-by%20JHVEPhoto%20via%20Shutterstock.jpg)
Valued at a market cap of almost $81 billion, Cadence Design Systems, Inc. (CDNS) offers products and tools that help customers design electronic products. The San Jose, California-based company, through its System Design Enablement (SDE) strategy, offers software, hardware, services, and reusable IC design blocks (IPs) to electronic systems and semiconductor customers.
This software company's shares have massively lagged behind the broader market over the past 52 weeks. Cadence has declined 1.9% over this time frame, while the broader S&P 500 Index ($SPX) has soared 22.3%. Moreover, the stock is down 1.8% on a YTD basis, compared to SPX’s 4% rise during the same time frame.
Zooming in further, Cadence’s underperformance becomes more evident when compared to the Technology Select Sector SPDR Fund’s (XLK) 17.1% return over the past 52 weeks and 3.2% gain on a YTD basis.
Cadence’s shares closed up 12.5% following its Q3 earnings release in October last year as the company delivered better-than-expected Q3 adjusted earnings of $1.64 per share and revenue of $1.2 billion.
Moreover, the company’s top line grew 19.6% year-over-year, while the bottom line rose 30.2%, driven by soaring demand for its AI design products with Cadence. AI portfolio sales tripled from the previous year. Additionally, significant growth in its Intellectual Property (IP) and System Design & Analysis (SD&A) segments further contributed to its strong performance. The company also raised its fiscal 2024 EPS outlook between $3.70 and $3.76, adding to the uptick.
For the fiscal year, which ended in December, analysts expect CDNS’ EPS to grow 20% year over year to $4.75. The company’s earnings surprise history is mixed. It beat the Wall Street estimates in two of the last four quarters while missing on two other occasions.
Among the 18 analysts covering the stock, the consensus rating is a “Strong Buy,” which is based on 14 “Strong Buy,” one “Moderate Buy,” two “Hold,” and one “Strong Sell” rating.
This configuration is more bullish than three months ago, with 12 analysts suggesting a “Strong Buy” rating.
On Dec. 14, Mizuho maintained an “Outperform” rating on CDNS and raised its price target to $350, which indicates an 18.6% potential upside from the current levels.
The mean price target of $326.72 represents a 10.7% upside from Cadence’s current price levels, while the Street-high price target of $365 suggests an upside potential of 23.7%.
