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A Closer Look at Cadence Design Systems

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Financial results

Cadence Design Systems’ (CDNS) revenue rose at a four-year CAGR (compound annual growth rate) of 7% to $1.9 billion in 2017. Its net income rose at a four-year CAGR of 12% to $392.6 million in the year.

Cadence’s revenue rose 8% to $1 billion in the first half of 2018. Products and maintenance accounted for 94% of the company’s revenue followed by services. Machine learning drove the company’s design activity.

The company’s Cadence Cloud, which is used for the development of better electronic systems and semiconductors, saw its net income improve 31% to $239.4 million in the first half.

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How do the projections look?

Cadence has revenue forecasts of $2.1 billion, $2.2 billion, and $2.3 billion, respectively, for 2018, 2019, and 2020. Its expected net incomes for the same years are $452.7 million, $502.7 million, and $576.9 million, respectively. The stock has “strong buy,” “buy,” and “hold” recommendations from three, two, and three analysts, respectively. It has “sell” recommendations from one analyst. Its projected PE multiples for 2018, 2019, and 2020 are 23.5x, 21.4x, and 19.8x, respectively.

CDNS versus the indexes

At the end of last week, CDNS had underperformed the NASDAQ Composite Index and the S&P 500 Application Software Index in the last month, in the last three months, in the last year, and YTD (year-to-date). The stock closed at a 17% discount to its 52-week high and a 10% premium to its 52-week low at the end of the week.

Latest developments

Cadence Design Systems recently received certification from TSMC for its mobile and high-performance computing designs. The company announced that its digital tools and advanced integrated circuit packaging solutions were compatible with TSMC’s packaging technology for the purpose of product innovation with next-generation chips.

Cadence also recently announced the expansion of the Cadence Cloud portfolio for customers such as Microsoft (MSFT) Azure and Amazon (AMZN) Web Services.

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