Cadence Design System: A Fairly Priced Leader In Analog

Credit Suisse’s Farhan Ahmad noted that Cadence Design Systems Inc CDNS has achieved a robust turnaround, delivering solid revenue and earnings growth, led by a strong management team. However, the stock valuation is less attractive than that of some of its peers.

Ahmad initiated coverage of the company with a Neutral rating and price target of $25.

Strong Presence

“CDNS has the broadest product portfolio that is required for designing products all the way from chip design to complete systems. The company is a near monopoly in custom design and has a strong presence in most EDA markets,” the analyst mentioned.

Cadence Design Systems had delivered the most rapid revenue and EPS growth over the last five years, as compared to other EDA companies, although a change in revenue recognition played a significant role in this.

Related Link: D.A. Davidson Upgrades Cadence Design Systems Inc. To Buy

Growth Potential

Ahmad expects the company to be able to grow its revenues at a CAGR of 5–6 percent going forward.

“We believe that, despite growing semi M&A concerns, CDNS will be able to meet expectations in 2016/2017, driven by growth in market share in emulation. The company is also executing on an aggressive buyback with a goal of $720 million in 2016,” the analyst added.

However, Ahmad also pointed out that the 2017 expectations could prove to be too high.

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