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Should You Buy Cadence Design (CDNS) Ahead of Earnings?

Zacks Equity Research

Investors are always looking for stocks that are poised to beat at earnings season and Cadence Design Systems, Inc. CDNS may be one such company. The firm has earnings coming up pretty soon, and events are shaping up quite nicely for their report.

That is because Cadence Design is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator of some favorable trends underneath the surface for CDNS in this report.

In fact, the Most Accurate Estimate for the current quarter is currently higher than the broader Zacks Consensus Estimate of 50 cents per share. This suggests that analysts have very recently bumped up their estimates for CDNS, giving the stock a Zacks Earnings ESP of +0.50% heading into earnings season.

Cadence Design Systems, Inc. Price and EPS Surprise

Cadence Design Systems, Inc. Price and EPS Surprise | Cadence Design Systems, Inc. Quote

Why is this Important?

A positive reading for the Zacks Earnings ESP has proven to be very powerful in producing both positive surprises, and outperforming the market. Our recent 10-year backtest shows that stocks that have a positive Earnings ESP and a Zacks Rank #3 (Hold) or better show a positive surprise nearly 70% of the time, and have returned over 28% on average in annual returns (see more Top Earnings ESP stocks here).

Given that CDNS has a Zacks Rank #1 (Strong Buy) and an ESP in positive territory, investors might want to consider this stock ahead of earnings. You can see the complete list of today’s Zacks #1 Rank stocks here.

Clearly, recent earnings estimate revisions suggest that good things are ahead for Cadence Design, and that a beat might be in the cards for the upcoming report.

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