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Cadence Design Systems (CDNS) Outpaces Stock Market Gains: What You Should Know

Zacks Equity Research

Cadence Design Systems (CDNS) closed at $66.13 in the latest trading session, marking a +1.49% move from the prior day. The stock outpaced the S&P 500's daily gain of 0.62%. Elsewhere, the Dow gained 0.61%, while the tech-heavy Nasdaq added 1.05%.

Coming into today, shares of the maker of hardware and software products for validating chip designs had lost 2.91% in the past month. In that same time, the Computer and Technology sector gained 3.77%, while the S&P 500 gained 3.85%.

Investors will be hoping for strength from CDNS as it approaches its next earnings release. On that day, CDNS is projected to report earnings of $0.51 per share, which would represent year-over-year growth of 4.08%. Our most recent consensus estimate is calling for quarterly revenue of $574.77 million, up 7.94% from the year-ago period.

For the full year, our Zacks Consensus Estimates are projecting earnings of $2.15 per share and revenue of $2.33 billion, which would represent changes of +14.97% and +8.83%, respectively, from the prior year.

Investors should also note any recent changes to analyst estimates for CDNS. These revisions help to show the ever-changing nature of near-term business trends. As a result, we can interpret positive estimate revisions as a good sign for the company's business outlook.

Our research shows that these estimate changes are directly correlated with near-term stock prices. We developed the Zacks Rank to capitalize on this phenomenon. Our system takes these estimate changes into account and delivers a clear, actionable rating model.

The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. Within the past 30 days, our consensus EPS projection remained stagnant. CDNS currently has a Zacks Rank of #3 (Hold).

Looking at its valuation, CDNS is holding a Forward P/E ratio of 30.33. This valuation marks a premium compared to its industry's average Forward P/E of 27.41.

Investors should also note that CDNS has a PEG ratio of 2.97 right now. The PEG ratio is similar to the widely-used P/E ratio, but this metric also takes the company's expected earnings growth rate into account. Computer - Software stocks are, on average, holding a PEG ratio of 2.14 based on yesterday's closing prices.

The Computer - Software industry is part of the Computer and Technology sector. This group has a Zacks Industry Rank of 79, putting it in the top 31% of all 250+ industries.

The Zacks Industry Rank gauges the strength of our industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

You can find more information on all of these metrics, and much more, on Zacks.com.

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