Tuesday - Baird has increased the price target on Cadence Design (NASDAQ:CDNS) Systems, Inc. (NASDAQ:CDNS) shares to $341 from the previous target of $322, while maintaining an Outperform rating on the stock.
The firm anticipates that Cadence Design, along with its industry counterpart Synopsys (NASDAQ:SNPS), is on the verge of a significant upward revision in estimates. This expectation is driven by an increase in research and development investments, which are projected to grow by double digits year-over-year in the second half of 2024 and potentially into the fiscal year 2025. This follows a period of 18 months where growth was closer to the low single digits.
The analyst from Baird suggests that the current situation mirrors the fiscal year 2022, which saw substantial upward revisions in financial expectations for Cadence Design and Synopsys.
During that fiscal year, revenue forecasts for the companies started with an expectation of high single-digit year-over-year growth and concluded with an actual increase of 19-20%. Similarly, earnings per share (EPS) estimates began with a low double-digit growth projection and ended with a 30% year-over-year increase.
The positive outlook is partly attributed to the anticipated new verification hardware cycle, which is expected to contribute to the growth trajectory of the companies. Verification hardware is a critical component in the design and testing of semiconductor devices, and new cycles in this technology can drive significant demand for the services provided by companies like Cadence Design.
Cadence Design Systems, Inc. specializes in electronic design automation (EDA) software and engineering services. The company's tools are used by semiconductor and electronics companies to design and test integrated circuits, as well as other types of electronic systems.
The revised price target of $341 reflects a confidence in the company's ability to capitalize on the increasing demand for advanced verification technologies and the overall growth in the semiconductor industry. The Outperform rating indicates that Baird's analyst believes Cadence Design's stock will perform better than the overall market in the near future.
InvestingPro Insights
According to Baird's analysis, Cadence Design Systems (NASDAQ:CDNS) is poised for a robust upward revision in estimates, a sentiment that is echoed by the company's strong financial metrics. InvestingPro data highlights Cadence's impressive gross profit margin of 89.31% for the last twelve months as of Q1 2024, showcasing its efficiency in generating income relative to the costs of goods sold. Additionally, the company's revenue has grown by 10.75% over the same period, indicating a healthy expansion in its business operations.
InvestingPro Tips for Cadence Design Systems point to a high Price / Book multiple of 23.89 and a P/E ratio of 80.1, suggesting that the stock is trading at a premium compared to its book value and earnings. While some analysts have revised their earnings expectations downwards for the upcoming period, the company has been profitable over the last twelve months and has delivered a high return over the last five years. With a market capitalization of $85.24 billion, Cadence operates with a moderate level of debt and has cash flows that can sufficiently cover interest payments, reflecting a stable financial position.
For readers seeking to delve deeper into the financial health and future prospects of Cadence Design Systems, additional InvestingPro Tips can be accessed by visiting https://www.investing.com/pro/CDNS. There, you will find more comprehensive analytics and insights. Moreover, by using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking even more valuable investment information.
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