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Cadence (CDNS) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

Cadence Design Systems Inc. CDNS is slated to report third-quarter 2019 results on Oct 21.

Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters, with a positive earnings surprise of 25.3%.

Past-Quarter Performance

Cadence had reported second-quarter 2019 non-GAAP earnings of 57 cents per share, which surpassed the Zacks Consensus Estimate of 53 cents and surged 26.7% from the year-ago quarter.

Revenues of $580.4 million outpaced the Zacks Consensus Estimate of $579 million and improved 11.9% on a year-over-year basis.

Cadence Design Systems, Inc. Price and EPS Surprise

 

Cadence Design Systems, Inc. Price and EPS Surprise

Cadence Design Systems, Inc. price-eps-surprise | Cadence Design Systems, Inc. Quote

What to Expect in Q2?

For third-quarter 2019, Cadence expects total revenues in the range of $570 million to $580 million. Management guided non-GAAP earnings in the range of 50-52 cents per share.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 33 cents, unchanged over the last 30 days. This indicates a decline of about 6.7% from year-ago reported figure. The Zacks Consensus Estimate for sales stands at $574.8 million, suggesting growth of 7.9% from the prior-year quarter.

Let’s see how things are shaping up prior to this announcement.

Factors to Watch

Robust adoption of Cadence’s digital and signoff, custom and analog, IP solutions and expanding customer base is anticipated to get reflected in the third-quarter results.

Cadence is sharpening its silicon-based design strategy to meet complex computing demands of 5G and AI applications. Increasing digital transformation across aerospace, automotive and medical domains is fueling demand for robust computational software and developer tools, which is likely to enhance the company’s prospects and drive the to-be-reported quarter’s results.

Cadence has carved a new System Analysis Group to focus exclusively on system analysis and design, with an aim to expand its total addressable market or TAM.

Recently, Innovium, engaged in providing data center Ethernet switching silicon solutions, selected Cadence Innovus Implementation System.

Further, Cadence’s Tensilica offerings are being utilized in Microsoft’s MSFT latest mixed-reality (MR) headsets, HoloLens 2. Cadence Tensilica Vision P6 DSPs have also been selected by Toshiba to accelerate development of advanced automotive SoCs. We believe the deal will aid the company enhance presence in aerospace and defense end market.

Management is optimistic about Protium X1, loaded with robust debug capabilities, aimed at enabling software developers to design advanced 5G and AI chips. Increasing investments on emerging trends like 5G, IoT, AR/VR and autonomous vehicle sub-systems are expected to get reflected in upcoming quarterly results.

The expansion of Cadence Verification Suite with the latest prototyping platform is anticipated to provide the company a competitive edge against Synopsys in the Electronic Design Automation (EDA) market.

Markedly, Cadence’s CloudBurst Platform, which offers access to the company’s design tools in hybrid cloud infrastructure, is being utilized by Barefoot Networks.

Moreover, Cadence’s flagship enterprise emulation verification platform — Palladium Z1 — has also been deployed by Acacia Communications, Inc. to design advanced DSP (or digital signal processor) ASICs.

In fact, management is elated with growing clout of the company’s innovative cloud-ready solutions. Cadence’s third-quarter revenues are likely to have benefited from latest customer wins and product roll outs in strategic growth markets.

We believe traction witnessed by Xcelium Parallel Simulator, Protium X1 and Palladium Z1 will show on third-quarter revenue results.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Cadence this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that's not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Cadence has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

Here are a few stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat.

Veoneer, Inc. VNE has an Earnings ESP of +7.14% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cadence Bancorp CADE has an Earnings ESP of +6.12% and a Zacks Rank #3.

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