Cadence Design Systems, Inc CDNS is scheduled to release third-quarter 2024 results on Oct. 28. The Zacks Consensus Estimate for third-quarter 2024 earnings has been unchanged in the past 60 days at $1.44 per share. The consensus mark implies an increase of 14.3% from the year-ago actual. The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $1.18 billion, indicating a 15.7% uptick from the year-ago actual.
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CDNS’ Estimate Trend
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Cadence has an impressive earnings surprise history. In the trailing four quarters, the company’s earnings outpaced the Zacks Consensus Estimate, with an average beat of 3.7%.
Earnings Whispers
Our proven model predicts an earnings beat for Cadence this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is exactly the case here.
CDNS currently has a Zacks Rank #2 and an Earnings ESP of +0.69%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Factors Shaping CDNS’ Q3 Results
Design activity across several verticals, especially data centers and automotive has been robust due to transformative generational trends, such as artificial intelligence (AI), hyperscale computing, 5G and autonomous driving. Customers have been significantly increasing their R&D budgets in AI-driven automation. This bodes well for Cadence. CDNS’ solutions have been also witnessing rapid uptake as system companies continue to build its silicon amid increasing chip complexity.
The System Design and Analysis division is likely to have gained from increasing demand for solutions like Allegro X and Integrity 3D-IC platform. Our estimate for revenues from System Design and Analysis is pegged at $171.7 million, indicating year-over-year growth of 29.1%.
Our estimate for revenues from the Functional Verification, including the Emulation and Prototyping Hardware segment, is pegged at $316.3 million, up 18.9%. The launch of Palladium Z3 Emulation and Protium X3 FPGA Prototyping systems in April 2024 is likely to have aided the company’s hardware sales. The new hardware is likely to have witnessed increasing demand, particularly from AI, hyperscale and automotive clients.
Cadence’s Digital IC Design and Signoff business performance is expected to have been driven by the steady adoption of digital full-flow solutions. Our estimate for revenues from the Digital IC Design and Signoff segment is pegged at $309.1 million, implying year-over-year growth of 7.9%.
Cadence Design Systems, Inc. Price and EPS Surprise
Cadence Design Systems, Inc. price-eps-surprise | Cadence Design Systems, Inc. Quote
The Custom IC business segment is likely to have gained from increasing demand for Virtuoso Studio. We expect revenues from this business to rise 12.4% year over year to $253.1 million in the third quarter. Opportunities presented by AI use cases, HPC and heterogenous integration are likely to have cushioned the performance of the IP business division. We expect revenues to rise 17.5% to $132.2 million on a year-over-year basis in the to-be-reported quarter.
For the third quarter of 2024, revenues are estimated to be in the $1.165-$1.195 billion band. The company reported sales of $1.023 billion in the year-ago quarter. Non-GAAP EPS for the third quarter is anticipated to be between $1.39 and $1.49. CDNS reported an EPS of $1.26 in the year-ago quarter. Non-GAAP operating margin is estimated to be between 40.7% and 42.3%.
Ongoing uncertainty prevailing over global macroeconomic conditions and inflation is concerning. Higher operating costs are added concerns. Moreover, Cadence faces stiff competition in the electronic design automation (“EDA”) space. Intensifying competition negatively impacts pricing power, which keeps margins under pressure.
CDNS Price Performance & Valuation
Despite a steady financial performance, the stock has performed less impressively on the trading front than its industry. CDNS stock has lost 8.6% on a year-to-date basis against its industry’s 13.3% growth. The S&P 500 composite index has risen 21.5% in the same time frame and the Zacks Computer and Technology sector has jumped 25.3%.
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From a valuation perspective, CDNS is trading at a relatively expensive level. Going by its forward 12-month price-to-earnings ratio, Cadence is trading at a multiple of 37.12X, below its median of 53.66X in the past five years. The company is trading at a premium compared with the industry’s ratio of 31.92X.
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How Should You Play CDNS Pre-Q3 Earnings?
Cadence’s strength in the EDA space along with increasing demand for differentiated solutions, strong bookings and a healthy backlog bodes well for its near and long-term prospects. Revenues from hardware systems is likely to gain steam owing to increasing interest in the new Palladium Z3 Emulation and Protium X3 FPGA Prototyping systems. The latest systems offer more than double the capacity and a significant performance increase from the prior generation.
Notwithstanding external risks, opportunities presented by the rapid proliferation of AI applications are likely to have driven the company’s top and bottom-line performances. CDNS remains focused on embedding cutting-edge AI capabilities across its SDA, EDA and digital biology offerings.
Despite stock underperformance and expensive valuation, CDNS stock looks like a potential buying opportunity for long-term investors regardless of what the upcoming results may reveal.
Other Stocks to Consider
Here are a few stocks that you may want to consider as our model shows that these, too, have the right combination of elements to post an earnings beat this season.
Alphabet Inc. GOOGL currently has an Earnings ESP of +0.45% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
GOOGL is scheduled to report quarterly earnings on Oct. 29. The Zacks Consensus Estimate for GOOGL to-be-reported quarter’s earnings and revenues is pegged at $1.83 per share and $72.83 billion, respectively. Shares of GOOGL have gained 29.6% in the past year.
Crocs, Inc. (CROX) presently has an Earnings ESP of +0.97% and a Zacks Rank #2. CROX is scheduled to report quarterly numbers on Oct. 29. The Zacks Consensus Estimate for CROX’s to-be-reported quarter’s earnings and revenues is pegged at $3.11 per share and $1.05 billion, respectively. Shares of CROX have risen 50% in the past year.
Visa Inc. V has an Earnings ESP of +0.14% and a Zacks Rank #3 at present. Visa is scheduled to report quarterly figures on Oct. 29. The Zacks Consensus Estimate for Visa’s to-be-reported quarter’s earnings and revenues is pegged at $2.58 per share and $9.49 billion, respectively. Shares of V have increased 19.8% in the past year.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Visa Inc. (V) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
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