Cadence Design Systems, Inc. (NASDAQ:CDNS) just released its latest second-quarter results and things are looking bullish. The company beat both earnings and revenue forecasts, with revenue of US$638m, some 8.0% above estimates, and statutory earnings per share (EPS) coming in at US$0.47, 56% ahead of expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
After the latest results, the 15 analysts covering Cadence Design Systems are now predicting revenues of US$2.60b in 2020. If met, this would reflect a modest 6.8% improvement in sales compared to the last 12 months. Statutory earnings per share are forecast to dive 48% to US$1.92 in the same period. Before this earnings report, the analysts had been forecasting revenues of US$2.56b and earnings per share (EPS) of US$1.64 in 2020. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the decent improvement in earnings per share expectations following these results.
The consensus price target rose 19% to US$110, suggesting that higher earnings estimates flow through to the stock's valuation as well. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Cadence Design Systems at US$128 per share, while the most bearish prices it at US$53.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We can infer from the latest estimates that forecasts expect a continuation of Cadence Design Systems'historical trends, as next year's 6.8% revenue growth is roughly in line with 8.0% annual revenue growth over the past five years. Compare this with the wider industry (in aggregate), which analyst estimates suggest will see revenues grow 13% next year. So it's pretty clear that Cadence Design Systems is expected to grow slower than similar companies in the same industry.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Cadence Design Systems following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Cadence Design Systems' revenues are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Cadence Design Systems going out to 2023, and you can see them free on our platform here..
However, before you get too enthused, we've discovered 1 warning sign for Cadence Design Systems that you should be aware of.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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