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Valued at a market cap of $82.2 billion, Cadence Design Systems, Inc. (CDNS) provides software, hardware, services, and reusable integrated circuit (IC) design blocks to electronic systems and semiconductor customers. The California-based company offers products and tools that help customers to design electronic products.
Shares of this computer software company have underperformed the broader market over the past 52 weeks. CDNS has gained 11.7% over this time frame, while the broader S&P 500 Index ($SPX) has rallied 31.1%. Moreover, on a YTD basis, shares of CDNS have gained 10%, compared to SPX’s nearly 24.1% return.
Zooming in further, CDNS’s underperformance looks more pronounced when compared to the Technology Select Sector SPDR Fund’s (XLK) nearly 26.6% gain over the past 52 weeks and 20.2% return on a YTD basis.
Cadence’s underperformance can be primarily attributed to its decelerating growth in the prior quarters. But on the flip side, shares of CDNS gained 12.5% following its better-than-expected Q3 earnings release on Oct. 28. The company’s adjusted EPS climbed 30.2% year over year to $1.64 and surpassed the Wall Street estimates of $1.44. Its revenue of $1.22 billion also outpaced the consensus estimates of $1.18 billion and increased 18.8% from a year ago.
Moreover, for the current fiscal year, ending in December, analysts expect CDNS’s EPS to increase almost 20% year over year to $4.75. The company’s earnings surprise history is mixed. It beat the consensus estimates in two of the last four quarters while missing on other two occasions.
Among the 16 analysts covering the stock, the consensus rating is a “Strong Buy,” which is based on 12 “Strong Buy,” one “Moderate Buy,” two “Hold,” and one "Strong Sell” rating.
On Oct. 29, Baird maintained an “Overweight” rating on CDNS and raised the price target to $340, which indicates a 13.5% upside from the current levels.
The mean price target of $316 represents a 5.5% upside from CDNS’s current price levels. The Street-high price target of $360 suggests an upside potential of 20.1%.
