If you are still holding on to shares of Cadence Design Systems, Inc.CDNS in your portfolio, it is time you dump them as chances of favorable returns in the near term appear bleak.
Dropping Cadence can maximize investor's portfolio returns as it has witnessed a significant price decline in the past year. Further, the company's Zacks Rank #5 (Strong Sell) only highlights its innate weakness.
Cadencehas gained just 18% of its value year over year, underperforming 23.4% growth of its industry .
Why Should Cadence be Avoided?
Cadence provided not so encouraging first-quarter guidance. For first-quarter 2018, the company expects total revenues to be in the range of $500-$510 million and non-GAAP earnings in the range of 36-38 cents per share. The Zacks Consensus Estimates for revenues and earnings are pegged at $505.8 million and 38 cents, respectively.
For 2018, revenues are anticipated to be in the range of $2.015-$2.055 billion. Non-GAAP earnings are guided in the range of $1.50-$1.60 per share. The Zacks Consensus Estimates for revenues and earnings are pegged at $2.05 billion and $1.57 per share, respectively.
Cadence faces stiff competition from other EDA companies like ANSYS and Siemens AG (post the acquisition of Mentor Graphics). Intensifying competition negatively impacts pricing power, which keeps margins under pressure.
The company generates a significant portion of its revenues from the International market. Consequently, we expect adverse foreign currency exchange rates to impede revenue growth in the near term due to fluctuation in the U.S. dollar against the Japanese Yen, Euro and other foreign currencies.
Acquisitions have also negatively impacted its balance sheet, as high indebtedness adds to the risk of investing in the company. As of Dec 30, 2017, the company had total debt of $644.4 million. We also note the high level of goodwill and intangible assets, which totaled $944.8 million or almost 39.1% of total assets at the end of fourth-quarter 2017.
So, it may not be a good decision to retain this stock in your portfolio anymore, at least if you don't intend to wait for a long time.
Stocks to Consider
Few better-ranked stocks in the broader technology sector include Applied Materials, Inc. AMAT , NVIDIA Corporation NVDA and Seagate Technology PLC STX , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Applied Materials, NVIDIA and Seagate Technology have a long-term expected EPS growth rate of 13.26%, 10.25% and 15.6%, respectively.
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