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Cadence Design Systems CDNS stock has declined 15.8% in the past three months, underperforming its industry and the broader technology sector. Within the same time frame, the sub-industry and the Zacks Computer and Technology sector have declined 2.5% and 4.3%, respectively. It also lags the S&P 500’s growth of 2.4%.
Three-Month Price Performance
CDNS shares have been declining as the company’s guidance for the current quarter revenues and earnings per share came in lower than anticipated despite positive business trends. The guidance is largely affected by the timing of Verification revenues and headwinds associated with China revenues.
This considerable decline in stock price has caught the attention of investors, prompting questions about whether to maintain their positions or cut their losses.
What Ails CDNS Stock?
The transition to next-generation Verification systems will weigh on the near-term revenues from the Functional Verification segment. CDNS launched new Verification hardware systems in April 2024. As a result, upfront revenues are expected to be skewed toward the second half of 2024 as the company works to build inventory of new systems.
Management noted that the ‘shape of the revenue curve’ is driving the guidance. It does not expect massive revenue growth in the Verification business in 2024 but it will be an improved performance over 2023. Verification revenues are likely to pick up pace in 2025 once the company completes building inventory of its new systems.
Moreover, CDNS cut the full-year EPS outlook, owing to the dilutive impact of 12 cents of the BETA CAE acquisition. Non-GAAP earnings per share for the full year are expected to be between $5.77 and $5.97 compared with the previous guidance of $5.88 and $5.98.
Uncertainty prevailing over global macroeconomic conditions and substantial exposure to the semiconductor vertical is concerning. Any reduction in R&D spending for companies within the semiconductor sector could affect CDNS' performance.
Higher operating costs and stiff competition in the EDA space from the likes of Keysight Technologies KEYS, Synopsys SNPS and ANSYS ANSS are additional headwinds. The pending acquisition of ANSYS by Synopsys is likely to amp up competition in the EDA space for all players.
CDNS' Premium Valuation & Bearish Technical Indicators
Cadence’s stock is trading at a premium with a forward 12-month Price/Earnings of 41.59X compared with the industry’s 32.56X. Though the lofty valuation reflects high expectations for future growth, the near-term prospects of the company remain somewhat muddled.
CDNS’ technical indicators suggest that further downside could be ahead. The stock has been trading below both the 100-day and 200-day moving averages, indicating that investors may be losing confidence in the stock. High valuation and bearish technical indicators suggest that CDNS stock may face more volatility, at least in the near term.
Estimates are Southbound for CDNS
Analysts are bearish about the stock, which is evident from the downward revision in earnings estimates.
In the past 60 days, analysts have decreased their earnings estimates for the current quarter and current year by 11.1% and 1% to $1.44 and $5.87 per share, respectively. The estimate for the next year has also been revised downward by 1.2% to $6.90.
Cadence’s Long-Term Prospects Encouraging
Strengthening demand trends for differentiated solutions, solid bookings and healthy backlog are key growth catalysts for CDNS. Cadence noted that its latest hardware (Palladium Z3 Emulation and Protium X3 FPGA Prototyping systems) solutions are likely to witness solid demand, especially by AI, hyperscale and automotive companies.
The Z3 and X3 platforms offer more than double the capacity and a significant performance increase from the prior generation. Leading tech firms like NVIDIA, ARM and AMD have also endorsed these systems.
CDNS’ Inorganic Growth Strategy on Point
Acquisitions have played a pivotal role in driving topline expansion for CDNS. Last year, CDNS acquired Intrinsix Corporation and SerDes and memory interface PHY IP business from Rambus. In 2022, the company acquired four companies: OpenEye Scientific Software, Future Facilities, Pointwise and NUMECA.
In June 2024, Cadence completed the acquisition of Switzerland-based BETA CAE, a leading provider of engineering simulation solutions. The acquisition will enhance Cadence's Intelligent System Design strategy by broadening its multiphysics system analysis offerings and helping it enter into the structural analysis sector. In January 2024, the company purchased California-based embedded software and system-level solutions provider Invecas, Inc.
Revenues for 2024 are now projected to be in the range of $4.6-$4.66 billion compared with the previous guidance of $4.56-$4.62 billion. It includes $40 million in revenues (at the midpoint) from the acquisition of BETA CAE.
Accelerating Design Activity Bodes Well for CDNS
Design activity continues to be solid, owing to transformative generational trends such as hyperscale computing, 5G and autonomous driving, bolstered by the proliferation of AI. CDNS solutions are also witnessing strong adoption as system companies build their silicon amid increasing chip complexity.
Customers have been significantly increasing their R&D budgets in AI-driven automation. This bodes well for the Cadence.AI portfolio. CDNS remains focused on embedding cutting-edge AI capabilities across its SDA, EDA and digital biology offerings.
Should CDNS Stock be in Your Portfolio?
Strong end-market demand and opportunities presented by the rapid proliferation of AI applications are positives for Cadence but the external risks warrant caution in the near term. The company’s falling estimates and expensive valuation are concerning.
Consequently, it might not be a prudent investment decision to bet on the stock, which carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, stakeholders and investors already owning the stock could stay put as long-term prospects for CDNS appear promising amid increasing design activity in the semiconductor space.
Zacks Investment Research
TELUS Corporation TU recently announced a C$9.6 million investment in Quebec's Chaudière-Appalaches region. This investment will be supported by an additional C$2.7 million from the government of Quebec and C$2.2 million from the Canadian Radio-television and Telecommunications Commission (“CRTC”), enabling the installation of 20 new 5G wireless sites in the area.
The government of Quebec's investment, announced in April 2024, will support the development of 16 new sites to boost cellular coverage in the region. While planning and preparatory work will begin this year, TELUS anticipates that the first sites will be operational by 2025. Additionally, as part of the CRTC Fund, detailed last year, two new wireless sites will be activated in Saint-Pamphile and Saint-Adalbert by the end of the year. The activation of a second site in Saint-Adalbert and another in Saint-Paul-de-Montminy will commence in 2025.
The combined financial contribution will facilitate the implementation and upgrade of TELUS' network, improving wireless connectivity in rural and remote areas. In the fourth quarter of 2023, the company projected a capital expenditure of C$2.6 billion for 2024. This guidance was reaffirmed in the second quarter of 2024, underscoring the company’s commitment to its planned investment strategy for the year.
TELUS Aims to Enhance Innovation & Connectivity Across Quebec
TELUS remains focused on its corporate social responsibility. The company aims to invest C$73 billion in Canada by 2028, including C$10 billion specifically for Quebec. As of June 30, 2024, TELUS provided 5G network coverage to nearly 32 million Canadians, representing more than 86% of the population.
In August, TELUS unveiled new additions to EnContinu+, a streaming bundle tailored specifically for Quebec residents. The new offering aims to boost the entertainment experience for TELUS and Koodo customers. Subscribers can enjoy a diverse selection of content, including French language programs and popular international shows and movies while benefiting from savings of up to 20% on the individual package.
In July, the company announced a C$6.6 million private investment in the North Shore region of Quebec, supported by an additional investment of C$6.8 million from the government of Quebec and C$5.5 million from CRTC for the addition of roughly 10 new 5G wireless sites in this region.
TELUS Corporation Price and Consensus
TELUS Corporation price-consensus-chart | TELUS Corporation Quote
Since 2023, the TELUS Friendly Future Foundation has contributed nearly $100,000 to local organizations in the Chaudière-Appalaches region, supporting projects that benefit youth. Beneficiaries include the Association Renaissance des Appalaches, Maison de la Famille Nouvelle-Beauce and Alliance Jeunesse des Chutes-de-la-Chaudière.
Vancouver, British Columbia-based TELUS is one of the leading telecom carriers in Canada (the largest in western Canada), with more than C$20 billion in annual revenues and 19 million customer connections. It provides wireless, wireline and Internet communications services for voice and data to businesses and consumers.
TU’s Zacks Rank & Stock Price Performance
TU currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 3.8% in the past year compared with the sub-industry's growth of 6.8%.
Stocks to Consider
Some better-ranked stocks from the broader technology space are Manhattan Associates, Inc. MANH, ANSYS, Inc. ANSS and Adobe Inc. ADBE. MANH presently sports a Zacks Rank #1 (Strong Buy), whereas ANSS & ADBE carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Manhattan Associates delivered an earnings surprise of 26.6%, on average, in the trailing four quarters. In the last reported quarter, MANH pulled off an earnings surprise of 22.9%. The Zacks Consensus Estimate for MANH has increased 9.2% in the past 60 days to $4.26.
ANSYS delivered an earnings surprise of 4.8%, on average, in three of the trailing four quarters. In the last reported quarter, ANSS pulled off an earnings surprise of 28.9%. It has a long-term earnings growth expectation of 6.4%.
Adobe delivered an earnings surprise of 2.6%, on average, in the trailing four quarters. In the last reported quarter, ADBE pulled off an earnings surprise of 2.7%. It has a long-term earnings growth expectation of 13%.
Zacks Investment Research
NetApp’s NTAP shares have been performing well on the trading front, with a gain of 33.7% year to date compared with the sub-industry and the S&P 500 composite’s growth of 33.4% and 18.1%, respectively.
Strong financial performance is driving the stock’s trajectory. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average surprise of 8.6%.
Closing at $117.86 as of yesterday’s trading session, NTAP stock is currently trading 12.7% below its 52-week high of $135.01 attained on July 10, 2024. This reflects further upside potential. Increasing demand across the all-flash and cloud storage portfolio is emerging as a tailwind for NetApp’s top line.
Year-to-Date Price Performance
What is Driving NTAP’s Performance?
NetApp is witnessing higher demand from customers for its portfolio of modern all-flash arrays, especially the C-series capacity flash and ASA block-optimized flash. The new all-flash A-series is also picking up momentum. These enterprise storage products will allow users to boost workloads, including traditional enterprise applications and Gen AI. The company expects the new AFF A-series, along with its C-series and ASA products, to capture further share in the all-flash market.
Also, Keystone’s storage-as-a-service offering is gaining significant traction, with revenues increasing more than 60% year over year in fiscal first-quarter 2025. The company’s All-Flash Array Business’s annualized net revenue run rate was $3.4 billion, up 21% year over year in the same quarter. Total billings rose 12% year over year to $1.45 billion.
Strengthening demand for NetApp’s solutions in flash, block, cloud storage and AI bodes well. In the fiscal first quarter, the company won more than 50 AI and data lake modernization deals. NTAP now expects full-year revenues in the range of $6.48-$6.68 billion, up 5% year over year at the mid-point. Earlier it projected sales in the band of $6.45-$6.65 billion.
The company now forecasts non-GAAP earnings per share for fiscal 2025 to be between $7 and $7.2, up 10% year over year at the mid-point. Earlier, it projected non-GAAP earnings between $6.8 and $7 per share. For fiscal 2025, NetApp continues to expect non-GAAP gross margin in the range of 71-72%. Non-GAAP operating margin is projected in the band of 27-28%, unchanged from the prior view.
However, the uncertain macroeconomic environment and cautious IT spending amid stiff competition in the all-flash business remain concerning.
NTAP’s Healthy Capital Allocation Strategy
NetApp’s cash, cash equivalents and investments were $3.02 billion and long-term debt was $1.244 billion as of July 26, 2024. For the fiscal first quarter, the company generated net cash from operations was $341 million and free cash flow was $300 million (free cash flow margin of 19.5%). Net cash balance provides the required flexibility to pursue any growth strategy, whether through acquisitions or otherwise.
A strong balance sheet helps NetApp to continue its shareholder-friendly initiatives of dividend payouts. The company returned $507 million to its shareholders as dividend payouts and share repurchases in the fiscal first quarter. NTAP has $1 billion worth of shares remaining under its existing authorization.
NTAP also announced a dividend of 52 cents payable on Oct. 23 to shareholders of record as of the close of business on Oct. 4.
Impressive Estimates Activity
The Zacks Consensus Estimate for NTAP’s fiscal 2025 and 2026 revenues is pegged at $6.57 billion and $6.85 billion, respectively, which indicates year-over-year growth of 4.9% and 4.2%.
The Zacks Consensus Estimate for earnings per share for fiscal 2025 and 2026 is pegged at $7.03 and $7.49, respectively, which implies a rise of 8.8% and 6.4% year over year.
The Zacks Consensus Estimate for fiscal 2025 and 2026 EPS has increased 2.5% and 2%, respectively, in the past 60 days, reflecting analysts’ optimism.
NTAP’s Favorable Rank & Growth Score
With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at present.
Apart from a favorable rank, NTAP has a Growth Score of A. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a Growth Score of A or B offer solid investment opportunities.
Other Stocks to Consider
Other top-ranked stocks worth consideration in the broader technology space are Manhattan Associates MANH, Adobe ADBE and ANSYS ANSS. While Manhattan Associates sports a Zacks Rank #1 (Strong Buy), Adobe and ANSYS carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MANH’s 2024 EPS is pegged at $4.26, unchanged in the past 30 days. MANH’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 26.6%. The stock has surged 33.9% in the past year.
The Zacks Consensus Estimate for Adobe’s fiscal 2024 EPS is pegged at $18.18, increased 2 cents in the past 30 days. ADBE’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.6%. The long-term earnings growth rate is 13.1%. Its shares have declined 2% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 2% in the past year
Zacks Investment Research
Wix.com’s WIX shares have been performing well on the trading front, with a gain of 65.4% in the past year compared with the S&P 500 composite and sub-industry’s growth of 25.9% and 22.9%, respectively.
Strong financial performance is driving the stock’s trajectory. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average surprise of 29.8%.
Closing at $156.59 as of yesterday’s trading session, WIX stock is currently trading 12.4% below its 52-week high of $178.65 attained on June 6, 2024. Technical indicators are supportive of Wix’s strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating robust upward momentum and price stability.
One-Year Price Performance
Headquartered in Tel Aviv, Israel, WIX is a cloud-based web development platform. It offers solutions that enable businesses, organizations, professionals and individuals to develop customized websites and application platforms and grow the companies’ online presence.
WIX’s Focus on AI-Powered Solutions to Drive Growth
Increasing adoption of the product portfolio, especially various artificial intelligence (AI) products and WIX Studio, has been driving the company’s performance. The addition of new features and enhancements to WIX Studio is driving its uptake. Management highlighted that the number of Studio accounts and rate of new Partners joining the Wix platform through Studio continue to better expectations.
The addition of new AI-powered offerings to its product portfolio is another tailwind. WIX is focusing on embedding AI assistants across its platform and has released 17 AI business assistants. The company recently launched its latest AI Theme Assistant which provides users with personalized recommendations and real-time advice, allowing them to easily customize their website’s theme. This tool is part of a broader suite of innovations from Wix, which is aimed at supporting users throughout every phase of their online journey, from initial ideas to final execution.
In June 2024, Wix launched advanced AI creation capabilities for its mobile app builder. The initiative is set to empower users to effortlessly craft professional and fully customizable applications. By leveraging AI technology, it revolutionizes the way business apps for iOS and Android can be designed and altered.
The company also expanded the availability of its AI Website Builder in different languages. Besides English, AI Website Builder is now available to global users in French, German, Portuguese, Spanish, Italian, Japanese, Turkish and Korean. This initiative aids users in building websites in their preferred language.
WIX is focusing on generative AI as this represents a significant business growth driver. In the second quarter of 2024, bookings revenues came at $458.4 million. This 15% year-over-year improvement was driven by solid uptake of WIX Studio, AI product suite and expanding commerce platform in this quarter. Total revenues increased 12% year over year to $435.7 million and beat the Zacks Consensus Estimate of $433.6 million. The expansion of the AI product portfolio is expected to drive the top line for WIX and further boost the stock.
WIX’s Robust Outlook
Continued strong momentum in the first half of 2024 led WIX to upgrade the outlook for bookings, revenues and free cash flow for the year.
Total bookings are expected to be between $1,802 million and $1,822 million compared with a previous range of $1,796-$1,826 million.
Total revenues are now expected to be in the range of $1,747-$1,761 million (previous projection: $1,738 million to $1,761 million).
Free cash flow, excluding headquarters costs, is expected to be between $460 million and $470 million, or 26-27% of revenues in 2024. Earlier, free cash flow was expected in the range of $445-$455 million, or 26% of revenues.
Estimates Northbound for WIX
The estimates have also moved northward in the past 60 days. The Zacks Consensus Estimate for 2024 and 2025 earnings per share (EPS) has increased 7.3% and 2.4%, respectively, reflecting analysts’ optimism.
The estimated figures for 2024 and 2025 EPS, $5.86 and $6.93, respectively, indicate a rise of 33.5% and 18.3% from the prior-year actuals. The long-term earnings growth rate is 22.4%.
The Zacks Consensus Estimate for WIX’s 2024 and 2025 revenues is pegged at $1.75 billion and $1.99 billion, respectively, which indicates growth of 12.4% and 13.2% from the year-ago levels.
WIX’s Attractive Valuation
WIX presents a compelling investment opportunity with its attractive forward 12-month price-to-sales ratio of 4.47, significantly lower than the industry average of 10.72 observed in the past year. Its forward 12-month price-to-sales ratio positions WIX as a value-driven choice with significant upside potential.
WIX Faces Certain Headwinds
However, unfavorable foreign currency movement and weak global macroeconomic conditions are headwinds.
Increasing investments in product development, infrastructure and platform, along with stiff competition in the e-commerce marketplace, remain concerning for this Zacks Rank #3 (Hold) stock.
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Manhattan Associates MANH, Adobe ADBE and ANSYS ANSS. While Manhattan Associates sports a Zacks Rank #1 (Strong Buy), Adobe and ANSYS carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MANH’s 2024 EPS is pegged at $4.26, unchanged in the past 30 days. MANH’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 26.6%. The stock has surged 33.9% in the past year.
The Zacks Consensus Estimate for Adobe’s fiscal 2024 EPS is pegged at $18.18, increased by 2 cents in the past 30 days. ADBE’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.6%. The long-term earnings growth rate is 13.1%. Its shares have declined 2% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 2% in the past year.
Zacks Investment Research
Dolby Laboratories, Inc. DLB has launched a new suite of cloud video products and solutions designed for real-time interactive streaming. Available as standalone tools or integrated solutions, they offer superior live sports and entertainment experiences.
This launch follows Dolby’s recent acquisition of THEO Technologies, a leading provider of premium video streaming tools used by prominent sports, media and entertainment companies globally.
THEOads is an advanced ad insertion tool that enhances advertising quality, flexibility and targeting within THEOplayer. Using server-guided ad insertion (SGAI) functionality, THEOads can optimally leverage THEOplayer’s capabilities to deliver more personalized and less intrusive ads, boosting viewer engagement and ad revenues without disrupting the viewing experience.
Apart from THEOads, Dolby and THEO’s combined solutions include Dolby Millicast for ultra-low latency streaming, Dolby Hybrik for transcoding and THEO’s cross-platform playback and live streaming tools like THEOplayer and THEOlive. These cutting-edge solutions are trusted by major sports, streaming and iGaming brands, such as FanDuel, ITV, Las Vegas Sands, NASCAR and the NFL, to enhance their live streaming services.
The combined offerings from Dolby and THEO elevate live experiences to be more interactive, personalized and delivered with minimal latency. With the introduction of THEOads at IBC 2024, these experiences now include advertisements tailored to the dynamic nature of live content, Dolby highlighted.
Synergies From Acquisitions to Aid DLB’s Top-Line Expansion
Dolby acquired THEO Technologies in July 2024, worth $55 million, to expand its Dolby.io offerings. With THEO, the company plans to address the growing demand for designing customized experiences in sports and entertainment.
Also, DLB announced the buyout of GE Licensing from GE Aerospace for $429 million in an all-cash transaction in June 2024. GE Licensing, a leading innovator in patent licensing and management, is a subsidiary of GE Aerospace that designs, develops and produces jet engines, components and integrated systems for military, commercial and business aircraft.
With this acquisition, Dolby expects to bolster its intellectual property portfolio through the strategic integration between its existing licensing businesses and GE Licensing's portfolio of video codec technologies (HEVC and VVC). The deal, likely to close by the end of fiscal 2024, is anticipated to be accretive on a non-GAAP basis to operating margins and earnings per share in fiscal 2025.
Synergies from the deal are likely to drive top-line expansion. Apart from inorganic growth, Dolby’s performance is gaining from the increasing adoption of Dolby Atmos and Dolby Vision.
Dolby Laboratories Price and Consensus
Dolby Laboratories price-consensus-chart | Dolby Laboratories Quote
In the fiscal third quarter, the company made significant strides in expanding the availability of its Dolby Vision and Dolby Atmos technologies across major verticals of autos, TVs and mobile. In May 2024, Dolby joined forces with VIZIO to make Dolby Atmos reachable to an expanded customer base. It is offering multi-dimensional sound experiences to consumers at a minimal price of $99. In April 2024, it announced that it was making Dolby Vision and Dolby Atmos available to all premium theater exhibitors.
Lower unit shipments of audio devices and cinema products due to weak demand trends at the box office are negatively impacting the top-line growth. Owing to these factors and the dynamic market conditions, management expects full-year revenues to be down 1-2%.
DLB’s Zacks Rank & Stock Price Performance
DLB currently carries a Zacks Rank #3 (Hold). Shares of the company have lost 11.8% in the past year against the sub-industry's growth of 5%.
Stocks to Consider
Some better-ranked stocks from the broader technology space are Manhattan Associates, Inc. MANH, ANSYS, Inc. ANSS and Adobe Inc. ADBE. MANH presently sports a Zacks Rank #1 (Strong Buy), whereas ANSS & ADBE carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Manhattan Associates delivered an earnings surprise of 26.6%, on average, in the trailing four quarters. In the last reported quarter, MANH pulled off an earnings surprise of 22.9%. The Zacks Consensus Estimate for MANH has increased 9.2% in the past 60 days to $4.26.
ANSYS delivered an earnings surprise of 4.8%, on average, in three of the trailing four quarters. In the last reported quarter, ANSS pulled off an earnings surprise of 28.9%. It has a long-term earnings growth expectation of 6.4%.
Adobe delivered an earnings surprise of 2.6%, on average, in the trailing four quarters. In the last reported quarter, ADBE pulled off an earnings surprise of 2.7%. It has a long-term earnings growth expectation of 13%.
Zacks Investment Research
Cadence Design Systems (CDNS) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
Over the past month, shares of this maker of hardware and software products for validating chip designs have returned -4.4%, compared to the Zacks S&P 500 composite's +3.7% change. During this period, the Zacks Computer - Software industry, which Cadence falls in, has gained 4.6%. The key question now is: What could be the stock's future direction?
Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Earnings Estimate Revisions
Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.
We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
Cadence is expected to post earnings of $1.44 per share for the current quarter, representing a year-over-year change of +14.3%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
For the current fiscal year, the consensus earnings estimate of $5.87 points to a change of +14% from the prior year. Over the last 30 days, this estimate has remained unchanged.
For the next fiscal year, the consensus earnings estimate of $6.90 indicates a change of +17.5% from what Cadence is expected to report a year ago. Over the past month, the estimate has remained unchanged.
Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Cadence is rated Zacks Rank #3 (Hold).
The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:
12 Month EPS
Revenue Growth Forecast
While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.
In the case of Cadence, the consensus sales estimate of $1.18 billion for the current quarter points to a year-over-year change of +15.7%. The $4.63 billion and $5.23 billion estimates for the current and next fiscal years indicate changes of +13.2% and +13.1%, respectively.
Last Reported Results and Surprise History
Cadence reported revenues of $1.06 billion in the last reported quarter, representing a year-over-year change of +8.6%. EPS of $1.28 for the same period compares with $1.22 a year ago.
Compared to the Zacks Consensus Estimate of $1.05 billion, the reported revenues represent a surprise of +1.17%. The EPS surprise was +4.07%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates three times over this period.
Valuation
Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Cadence is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Bottom Line
The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Cadence. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.
Zacks Investment Research
Onto Innovation’s ONTO shares have been performing well on the trading front, with a gain of 48.6% in the past year compared with the S&P 500 composite and sub-industry’s growth of 23.5% and 44.1%, respectively.
Closing at $192.97 as of yesterday’s trading session, ONTO stock is currently trading 19.2% below its 52-week high of $238.93, attained on July 16, 2024.
Solid financial performance has been aiding the stock’s trajectory. ONTO outpaced estimates in each of the trailing four quarters, with the average surprise being 6.6%.
From a valuation perspective, ONTO is trading at a premium. Going by its forward 12-month price-to-earnings ratio, ONTO is trading at a multiple of 32.2, below the industry’s ratio of 6.4 in the past five years.
ONTO Gains From Uptake of Dragonfly Platform
Onto Innovation’s performance is gaining from increasing demand for its Dragonfly inspection system. Its Dragonfly G3 platform integrates 2D and 3D technologies to identify yield-killing defects and compute features, which are important for advanced front-end and packaging technologies. The system is witnessing strong adoption owing to higher demand for advanced packaging of AI computing devices.
In the last reported quarter, total revenues of $242.3 million beat the Zacks Consensus Estimate by 2.9%. The top line expanded 27.1% year over year. The uptick was largely driven by the expansion of pilot lines for high-performance computing, which incorporates cutting-edge gate-all-around transistor architecture and high-bandwidth memory to support the growing demand in the AI sector.
Revenues surpassed the high end of the company’s guided range of $230-$240 million. Management highlighted record revenues of $164 million from its specialty and advanced packaging customers. This growth was driven by demand from the company’s AI packaging customers.
Healthy momentum in advanced nodes sales was driven by the success of ONTO’s Atlas and Iris systems. These systems are pivotal in supporting emerging gate-all-around devices.
In the last reported quarter, ONTO secured more than $300 million in volume purchase agreements from two major customers. These agreements, which extend through 2025, pertain to investments in AI advanced packaging and gate-all-around technologies. In addition, ONTO bolstered its product portfolio with the introduction of the JetStep X500 lithography tool, specifically crafted for next-generation glass substrates used in panel-level packaging. The addition of these sensors will enable its users to collect important data needed to mature their process in a relatively shorter time.
ONTO Provides Strong Outlook
For the third quarter, the management expects revenues in the range of $245-$255 million. For the second half, it now expects revenues to be 5-10% stronger than the first half of 2024.
The company remains focused on inventory reduction to boost cash-flow performance. Improvements in supply-chain initiatives are expected to drive margin performance.
ONTO expects revenues to gain from increasing investments in gate-all-around capacity and capacity expansions by several high-bandwidth memory and logic packaging manufacturers in 2025.
Estimates Move Upward for ONTO
The Zacks Consensus Estimate for ONTO’s 2024 and 2025 revenues is pegged at $976.6 million and $1.11 billion, respectively, indicating growth of 19.7% and 14% from the year-ago levels.
The consensus estimate for 2024 and 2025 EPS is expected to be $5.18 and $6.33, respectively, implying a rise of 38.9% and 22.2% from the prior-year actuals.
The consensus mark for the current quarter and 2024 EPS has increased 10% and 2.6%, respectively, in the past 60 days.
ONTO Faces Certain Headwinds
The weak global macroeconomic backdrop, forex fluctuations and fierce competition are concerns for this Zacks Rank #3 (Hold) company.
Increasing expenses is likely to weigh on the company’s margin’s performance. For the third quarter of 2024, it expects operating expenses in the range of $64-$66 million amid higher research and development expenses.
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Manhattan Associates MANH, Adobe ADBE and ANSYS ANSS. While Manhattan Associates sports a Zacks Rank #1 (Strong Buy), Adobe and ANSYS carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MANH’s 2024 EPS is pegged at $4.26, unchanged in the past 30 days. MANH’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 26.6%. The stock has surged 30.1% in the past year.
The Zacks Consensus Estimate for Adobe’s fiscal 2024 EPS is pegged at $18.16, unchanged in the past 30 days. ADBE’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.6%. The long-term earnings growth rate is 13%. Its shares have gained 6.2% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 0.3% in the past year
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