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What's in the Offing for Cadence (CDNS) in Q2 Earnings?

Zacks Equity Research

Cadence Design Systems Inc. CDNS is slated to report second-quarter 2019 results on Jul 22.

Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters, with a positive earnings surprise of 12.1%.

Past-Quarter Performance

Cadence delivered first-quarter 2019 non-GAAP earnings of 54 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. The figure surged 35% from the year-ago quarter.

Revenues of $576.7 million outpaced the Zacks Consensus Estimate of $560 million and improved 11.5% on a year-over-year basis.

What to Expect in Q2?

For second-quarter 2019, Cadence expects total revenues in the range of $575-$585 million. Management guided non-GAAP earnings in the range of 52-54 cents per share.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 53 cents, unchanged over the last 30 days. This indicates an improvement of about 17.8% from year-ago reported figure. The Zacks Consensus Estimate for quarterly sales stands at $579.1 million, suggesting growth of 11.7% from the prior-year quarter.

Notably, Cadence stock has returned 64.1% in past year, substantially outperforming the industry’s rally of 26.7%.

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

Factors Likely to Influence Q2 Results

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

Cadence is evolving its silicon-based design strategy with an aim to meet complex computing demands of 5G and AI applications. In fact, the company has carved a new System Analysis Group to focus exclusively on system analysis and design. Increasing investments on emerging trends like 5G, IoT, AR/VR and autonomous vehicle sub-systems are expected to aid its upcoming quarterly results.

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.

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 act as a tailwind in the to-be-reported quarter.

Cadence recently unveiled CloudBurst Platform, which offers access to the company’s design tools in hybrid cloud infrastructure. It was recently utilized by Barefoot Networks. It also introduced Verification IP (VIP), which is compliant with DisplayPort 2.0 standard. 

Furthermore, the company recently rolled out Clarity 3D Solver, marking its foray into the 3D modeling software market. The fact that Clarity 3D Solver can be integrated with Cadence’s implementation platforms to enhance performance provides leverage to its 3D modeling goals.

Moreover, Cadence’s association with Northrop Grumman, which is utilizing the company’s IP and EDA solutions, is noteworthy. We believe the deal will aid the company enhance presence in aerospace and defense end market.

Cadence is anticipated to benefit considerably from latest customer wins and product roll outs in strategic growth markets, consequently, favoring its top line in the upcoming quarterly results.

Further, increasing popularity of the company’s innovative cloud-ready solutions and strong demand for growing hardware capacity is fueling adoption of Palladium Z1. Cadence recently announced that Innovium has implemented the Palladium Z1 platform and the Protium S1 to accelerate development of its Ethernet switch. Further, NVIDIA recently selected the company’s Protium X1 platform to speed up development of its high-capacity GPUs.

We believe traction witnessed by Xcelium Parallel Simulator, Protium X1 and Palladium Z1 will bolster the top line in the to-be-reported quarter.

What the Zacks Model Unveils

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 has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Lockheed Martin Corporation LMT has an Earnings ESP of +0.14% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AmerisourceBergen Corporation ABC has an Earnings ESP of +0.92% and a Zacks Rank #2.

PayPal Holdings, Inc. PYPL has an Earnings ESP of +14.38% and a Zacks Rank #3.

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