Dj Cadence Design Systems Inc. Stock Underperforms Tuesday When Compared To Competitors

Micron Technology, Inc. MU, a leader in the semiconductor sector, has shown resilience amid turbulent market conditions. The Boise, ID-based memory chip maker has surged by 11.4% in the past three months, outperforming the Zacks Computer – Integrated System industry and the S&P 500, which rose 9.8% and 10.6%, respectively. This solid performance prompts investors to question whether it’s the right time to buy, sell or hold Micron stock.

3-Month Price Return Performance

Cadence Design Systems (CDNS) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.

Shares of this maker of hardware and software products for validating chip designs have returned +6.7% over the past month versus the Zacks S&P 500 composite's +3.3% change. The Zacks Computer - Software industry, to which Cadence belongs, has gained 3.7% over this period. Now the key question is: Where could the stock be headed in the near term?

While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.

Revisions to Earnings Estimates

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

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 $1.84 per share for the current quarter, representing a year-over-year change of +33.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -9.3%.

For the current fiscal year, the consensus earnings estimate of $5.91 points to a change of +14.8% from the prior year. Over the last 30 days, this estimate has changed +0.6%.

For the next fiscal year, the consensus earnings estimate of $6.83 indicates a change of +15.6% from what Cadence is expected to report a year ago. Over the past month, the estimate has changed -1%.

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

Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.

For Cadence, the consensus sales estimate for the current quarter of $1.35 billion indicates a year-over-year change of +26.3%. For the current and next fiscal years, $4.63 billion and $5.23 billion estimates indicate +13.2% and +13% changes, respectively.

Last Reported Results and Surprise History

Cadence reported revenues of $1.22 billion in the last reported quarter, representing a year-over-year change of +18.8%. EPS of $1.64 for the same period compares with $1.26 a year ago.

Compared to the Zacks Consensus Estimate of $1.18 billion, the reported revenues represent a surprise of +2.66%. The EPS surprise was +13.89%.

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 F 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.

Conclusion

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

Cadence Design Systems (CDNS) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.

Shares of this maker of hardware and software products for validating chip designs have returned +3.9% over the past month versus the Zacks S&P 500 composite's -1% change. The Zacks Computer - Software industry, to which Cadence belongs, has lost 3.4% over this period. Now the key question is: Where could the stock be headed in the near term?

While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.

Earnings Estimate Revisions

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Cadence is expected to post earnings of $1.84 per share for the current quarter, representing a year-over-year change of +33.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -9.3%.

The consensus earnings estimate of $5.91 for the current fiscal year indicates a year-over-year change of +14.8%. This estimate has changed +0.6% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $6.83 indicates a change of +15.6% from what Cadence is expected to report a year ago. Over the past month, the estimate has changed -1%.

With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Cadence.

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.

For Cadence, the consensus sales estimate for the current quarter of $1.35 billion indicates a year-over-year change of +26.3%. For the current and next fiscal years, $4.63 billion and $5.23 billion estimates indicate +13.2% and +13% changes, respectively.

Last Reported Results and Surprise History

Cadence reported revenues of $1.22 billion in the last reported quarter, representing a year-over-year change of +18.8%. EPS of $1.64 for the same period compares with $1.26 a year ago.

Compared to the Zacks Consensus Estimate of $1.18 billion, the reported revenues represent a surprise of +2.66%. The EPS surprise was +13.89%.

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

No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.

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.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Cadence is graded F 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.

Conclusion

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

Thursday, October 31, 2024

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 12 major stocks, including Toyota Motor Corp. (TM), Texas Instruments Inc. (TXN) and Arista Networks, Inc. (ANET), as well as a micro-cap stock Crown Crafts, Inc. (CRWS). The Zacks microcap research is unique as our research content on these small and under-the-radar companies is the only research of its type in the country.

These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Toyota Motor’s shares have declined -6.4% over the past year against the Zacks Automotive - Foreign industry’s decline of -12%. The company’s top line is set to benefit from continued vehicle demand and a robust lineup of trucks and sport utility vehicles. The RAV4 model, with hybrid variants that make up about half of Toyota’s sales, is America's top-selling SUV.

Toyota Motor might soon be offered only as a hybrid, similar to the Camry and other models. This strategy leverages its dominant position in the hybrid market. Toyota anticipates continued growth in hybrid sales, predicting that hybrids will account for more than 50% of the company’s total volume next year.

Toyota Motor’s aims to generate 40% of its global sales from EVs by 2025 and 70% by 2030. Toyota’s commitment to maximizing shareholders’ value via dividends and buybacks is also praiseworthy. Thus, we are bullish on the stock for the time being.

(You can read the full research report on Toyota Motor here >>>)

Shares of Texas Instruments have gained +25.9% over the year-to-date period against the Zacks Semiconductor - General industry’s gain of +129.3%. The company is benefiting from solid data center demand, which is boosting its prospects in the enterprise systems market. Improving conditions in the personal electronics and communication equipment markets is a plus.

Texas Instruments’ growing investments in new growth avenues and competitive advantages are tailwinds. Its deepening focus on manufacturing, advanced technology infusion, product portfolio expansion and consistent returns to shareholders is another positive.

However, widespread weakness in the industrial and automotive markets is a major concern. Sluggishness in its Analog, Embedded Processing and Other segments is a negative. Increasing manufacturing costs are hurting its profitability. An overall weak demand environment and growing U.S.-China tensions are concerns.

(You can read the full research report on Texas Instruments here >>>)

Arista Networks’ shares have outperformed the Zacks Communication - Components industry over the year-to-date period (+69.7% vs. +61.4%). The company is benefiting from solid net sales growth, driven by strong momentum in the cloud networking vertical and data center business. It provides routing and switching platforms with industry-leading capacity, low latency, port density and power efficiency.

Arista Networks also continues to innovate in areas such as deep packet buffers, embedded optics and reversible cooling. Such a comprehensive portfolio augurs well for its long-term growth. Its strong emphasis on quality, solid execution and consistent release schedule are driving more value for customers. Steady improvement in lead times and easing of supply chain woes are major tailwinds. Strong growth in gross margin is a positive.

However, Arista faces fierce competition in cloud networking solutions, particularly in 10-gigabit Ethernet and above. Customer concentration risk remains a concern.

(You can read the full research report on Arista Networks here >>>)

Shares of Crown Crafts have gained +15.2% over the past year against the Zacks Textile - Home Furnishing industry’s gain of +67%. This microcap company with market capitalization of $47.3 million have made acquisition of Baby Boom Consumer Products which enhances product diversification and brand positioning, expanding its portfolio into toddler bedding and adding popular licensed brands like Bluey and Paw Patrol, boosting market penetration.

The acquisition enhances cross-selling opportunities, potentially driving revenue growth. The company’s significant reduction in long-term debt improves financial flexibility, yet rising debt from the acquisition and retailer inventory reductions pose risks.

Despite resilient core segments and positive feedback on product innovations, Crown Crafts faces challenges with margin compression, a recent net loss, and dependence on a few large customers. Execution risks from strategic initiatives, including the U.K. subsidiary closure, and risks from retailer inventory reductions add further uncertainty.

(You can read the full research report on Crown Crafts here >>>)

Other noteworthy reports we are featuring today include Lam Research Corp. (LRCX), Cadence Design Systems, Inc. (CDNS) and Becton, Dickinson and Co. (BDX).

Mark Vickery

Senior Editor

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Today's Must Read

Continued Demand & Surge in Hybrid Adoption Aid Toyota (TM)

Texas Instruments (TXN) Banks on Solid Data Center Demand

Arista (ANET) Rides on Healthy Demand, Portfolio Strength

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New Upgrades

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Zacks Investment Research