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Factors Likely to Impact Cadence (CDNS) This Earnings Season

Zacks Equity Research

Cadence Design Systems Inc. CDNS is set to report first-quarter 2019 results on Apr 22. Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters, recording a positive earnings surprise of 11.4%.

Cadence had delivered robust fourth-quarter 2018 results, wherein both the top and bottom line outpaced the respective Zacks Consensus Estimate. The figures also were higher than management’s respective guided ranges and increased on a year-over-year basis.

For first-quarter 2019, Cadence expects total revenues under ASC 606 in the range of $565 million to $575 million and non-GAAP earnings in the band of 48 cents to 50 cents per share.

The Zacks Consensus Estimate for first-quarter earnings is pegged at 50 cents, unchanged for the last 30 days. This reflects an increase of about 25% from year-ago earnings. The Zacks Consensus Estimate for quarterly sales stands at $567.1 million, suggesting an increase of 9.6% year over year.

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

Cadence Design Systems, Inc. Price and EPS Surprise


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

Factors At Play

Robust adoption of Cadence’s digital and signoff, custom and analog, IP solutions and expanding customer base are expected to influence first-quarter results.

Further, increasing investments on emerging trends like IoT, AR/VR and autonomous vehicle sub-systems are expected to support its earnings in the first quarter. .

Moreover, Cadence is focusing on providing end-to-end solutions, which rapidly reduces the time required to introduce a semiconductor product in the market. In this regard, the company's frequent product launches and enhancements are expected to be a tailwind in the to-be-reported quarter.

Cadence recently rolled out LPDDR5 IP solution utilizing Taiwan Semiconductor Manufacturing Company’s 7-nanometer (nm) FinFET (Fin Field Effect Transistor) process technology. The robust adoption of its PCIe (peripheral component interconnect express) and DDR products in the IP segment will aid the company’s first quarter segmental revenues.

Moreover, the company is leaving no stone unturned to assist customers in reducing time-to-market by accelerating their system-on-chip (“SoC”) design processes. We believe that incremental adoption of the offerings will favor financial performance of IP segment in the quarter under review.

The company collaborated with Northrop Grumman in the first quarter to develop advanced-node SoC projects, in order to offer high-quality and high-performance SoCs. The deal is anticipated to have aided the company’s functionality related to digital and signoff and IP solutions in aerospace and defense industry in the quarter to be reported.

Further, traction witnessed by Xcelium Parallel Simulator and Palladium Z1 drove revenues in System Design and Verification solutions in the last reported quarter. We believe the innovative cloud-ready solutions broaden the company’s portfolio in an effective manner. The significant number of customer wins, strong collaborations and other repeat orders are expected to bolster the top line in the soon to-be reported quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Cadence currently has a Zacks Rank #1 and an Earnings ESP of +0.50%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks with Favorable Combination

Here are some stocks that are worth considering as our model shows that these have the right combination of elements to deliver an earnings beat in the upcoming releases.

Xilinx, Inc. XLNX has an Earnings ESP of +1.75% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Veritex Holdings, Inc. VBTX has an Earnings ESP of +0.58% and a Zacks Rank #2.

Lockheed Martin Corporation LMT has an Earnings ESP of +4.16% and a Zacks Rank #3.

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