Cadence Design Systems, Inc. CDNS has caught the eye of investors with impressive price performance over the last two years. The stock, which was valued at $31.93 at Mar 20, 2017, currently trades close to $61.06, reflecting almost a two-fold jump.
Notably, the company has gained approximately 37.4% since it reported fourth-quarter fiscal 2018 results on Jan 10. Shares of Cadence have returned approximately 60.8%, considerably outperforming the industry’s rally of 24.1%. The stock has also substantially outperformed S&P 500’s growth of 6.6% in the same period.
The outperformance can primarily be attributed to robust adoption of the company’s digital and signoff, custom & analog and IP solutions. Strong pipeline of Cadence’s innovative cloud-ready solutions deserves a special mention.
We note that Cadence has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive average earnings surprise of 11.4%.
Let’s delve deeper and analyze the factors driving Cadence’s robust quarterly performances.
Key Growth Drivers
Cadence is focusing on providing end-to-end solutions, which rapidly reduces the time required to introduce a semiconductor product in the market.
The company is experiencing strong demand for its software – particularly verification and digital design products – from customers providing datacenter servers and networking products.
Further, the company’s collaboration with Microsoft’s MSFT Azure, Amazon’s AMZN Amazon Web Services and Alphabet’s GOOGL Google Cloud platform to enable smooth design development of electronic systems and semiconductors, bodes well.
Moreover, increasing investments on emerging trends like Internet-of-Things (IoT), AR/VR and autonomous vehicle sub-systems present significant growth opportunity for Cadence.
Strength in IP Domain
The company is benefiting from robust adoption of the company’s PCIe (peripheral component interconnect express) and DDR products in the IP segment.
In fact, Cadence’s buyout of nusemi, a company that develops high-speed Serializer/Deserializer (SerDes) communications IP, to complement its existing SerDes solutions, is another positive.
With the integration of nusemi’s technologies, Cadence is well poised to deliver efficient, cost saving and high bandwidth functionality for telecom segments, edge computing and networking services.
In fact, the company recently rolled out LPDDR5 IP solution utilizing TSMC’s 7 nm FinFET process technology. Notably, Cadence Denali Gen2 IP, the “industry’s first” silicon-based as well as LPDDR5 (Low-Power Double Data Rate) standard IP solution, is now available.
We believe that incremental adoption of the offerings will favor financial performance of IP segment going ahead.
Encouraging Guidance & Positive Estimate Revisions
Cadence provided an encouraging guidance for the first quarter. For first-quarter 2019, Cadence anticipates total revenues under ASC 606 in the range of $565-$575 million and non-GAAP earnings in the range of 48-50 cents per share.
The Zacks Consensus Estimates for revenues are pegged at $567.1 million, indicating year-over-year growth of 9.6%.
Notably, over the past 30 days, the Zacks Consensus Estimate for current quarter has moved upward by 8.7% to 50 cents per share. The figure reflects year-over-year growth of 25%.
On the heels of the aforementioned factors, we believe that odds are in favor of an upside in the near term are high.
We believe Cadence, which flaunts a Zacks Rank #1 (Strong Buy), can be a lucrative addition to one’s portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.
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