Cadence Design Systems is a high quality to buy in 2022

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Cadence Design Systems, Inc. (CDN) in San Jose, California, offers globally reusable software, hardware, services, and integrated circuit (IC) design blocks. It provides functional verification services including hardware emulation and prototyping. Shares of the company have gained 19% in price over the past nine months to close yesterday’s trading session at $150.53.

The company delivered stable revenue and earnings growth in its most recent quarter and intends to deliver better returns to shareholders in the months ahead by capitalizing on industry trends and design activities semiconductor and systems companies.

Additionally, this month, CDNS received the TSMC Open Innovation Platform (OIP) Ecosystem Forum Customers’ Choice Award for an article titled “Integrated Platform for 3D Design- IC”, which was presented during the 2021 North American OIP Ecosystem Forum.

Click here to view our Software Industry Report for 2022

Here is what could shape the performance of CDNS in the short term:

Strategic cooperation

Last month, CDNS and Dassault Systèmes announced a strategic partnership to provide next-generation integrated solutions for the development of high-performance electronic systems to enterprise customers in a variety of vertical markets, including high-tech, transportation and mobility. , industrial equipment, aerospace and defense. , and health care. Dassault Systèmes’ 3DEXPERIENCE and Cadence Allegro platforms have been merged to provide a single solution that enables companies to tackle the multidisciplinary modeling, simulation and optimization of complex networked electronic systems. With this, customers can now accelerate their end-to-end system development process while optimizing their design for performance, reliability, manufacturability, supply resiliency, compliance, and cost with this new interdisciplinary solution.

Strong finances

During the fourth quarter, ended January 1, 2022, total CDNS revenue increased slightly year-over-year to $773.03 million. His operating result rose 5.8% year over year to $195.68 million. The company’s non-GAAP net income was $227.37 million, while its non-GAAP EPS was $0.82.

High profitability

CDNS’ 12-month net profit margin of 23.4 is 281.1% higher than the industry average of 6.1%. In addition, its ROC, gross profit margin and ROA are 213.7%, 81.1% and 312% higher than the respective industry averages. And its $1.10 billion in cash from operations is 1037.8% higher than the industry average of $96.77 million.

Impressive growth prospects

The Street expects CDNS revenue and EPS to grow 11% and 15.2%, respectively, year-over-year to $3.32 billion and $3.79 in in its 2022 fiscal year. Additionally, CDNS’ EPS is expected to grow at a CAGR of 15.4% over the next five years. Additionally, the company has an impressive track record of earnings surprises; it has exceeded street EPS estimates in each of the past four quarters.

Consensus Rating and Price Target Indicate Upside Potential

Of the eight Wall Street analysts who rated CDNS, six rated it Buy and one rated it Hold. The 12-month median price target of $190.13 indicates a Upside potential of 26.3%. Price targets range from a low of $175.00 to a high of $211.00.

POWR ratings reflect strong outlook

CDNS has an overall rating of B, which equates to a buy rating in our own POWR Rankings system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight different categories. CDNS has an A rating for quality and a B for sentiment. CDNS’s strong earnings and revenue growth potential is consistent with the Quality Score. Additionally, the favorable analyst rating and price targets are in line with the sentiment rating.

Among the 165 shares of the Software app industry, CDNS is ranked #26.

Beyond what I said above, we rated CDNS for growth, value, stability and momentum. Get all CDNS ratings here.

Conclusion

Through an accelerated intelligent systems design strategy, the introduction of more than a dozen major innovative products, and the completion of key strategic acquisitions, the company has experienced robust growth in all of its business segments. Additionally, given favorable analyst price targets and fundamental strength, the stock is likely to soar in the coming months. So, we think the stock could be a great bet now.

How does Cadence Design Systems Inc. (CDNS) compare to its peers?

CDNS has an overall POWR rating of B, which equates to a Buy rating. Check out these other stocks in the same sector with A (strong buy) ratings: SS&C Technologies Holdings Inc. (SSNC), Rimini Street Inc. (RMNI) and SAP SE ADS (SAP).

Click here to view our Software Industry Report for 2022

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Shares of CDNS were unchanged in premarket trading on Wednesday. Year-to-date, the CDNS is down -19.22%, compared to a -9.47% rise in the benchmark S&P 500 over the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate. Continued…

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