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On Wednesday, Piper Sandler adjusted its outlook on Cadence Designs (NASDAQ:CDNS) shares, raising the price target to $328 from the previous $318 while maintaining an Overweight rating. According to InvestingPro analysis, the stock appears to be trading near its Fair Value, with analyst targets ranging from $225 to $355. The adjustment comes amidst a review of the company’s financial guidance for 2025, which forecasts $5.180 billion in revenue, marking an 11.6% year-over-year growth.
Cadence Designs’ guidance was slightly below the consensus estimate of $5.23 billion, which would have indicated a 12.7% growth. However, Piper Sandler suggests that the market may have held more conservative expectations. Analyst Clarke Jeffries noted that discussions during the second half of 2024 revealed that forecasts anticipating 13-14% growth were overly optimistic.
The company has taken a cautious approach with its China revenue projections, expecting them to remain flat year-over-year. Despite this conservative stance, Piper Sandler believes that the implied growth rate for markets outside of China is likely to be received positively by investors. InvestingPro data highlights the company’s financial strength with an impressive 86.05% gross profit margin and a healthy current ratio of 2.93, indicating strong operational efficiency and liquidity. The firm points out that Cadence Designs concluded the previous year with a 13% increase in backlog growth, which suggests a robust growth of approximately 20% year-over-year for the first half of the year, based on the six-month visibility to hardware revenues.
Even with an assumed 11.6% growth rate, Cadence Designs is expected to maintain incremental margins in the low-50s. According to Piper Sandler, this positions the company’s low-teens growth rate outside of China as an optimistic benchmark for the year’s guidance commencement.
In other recent news, Cadence Design Systems reported its fourth-quarter earnings for 2024, surpassing analyst expectations with an earnings per share (EPS) of $1.88, compared to the forecast of $1.82. The company’s revenue for the quarter reached $1.356 billion, exceeding both Rosenblatt’s and consensus estimates, marking a 27% year-over-year increase. KeyBanc Capital Markets maintained its Overweight rating on Cadence with a $355 price target, emphasizing the company’s record backlog of $6.8 billion as a positive indicator of future performance. Meanwhile, Loop Capital adjusted its price target to $340 from $360, citing a fiscal year 2025 revenue forecast that fell below consensus expectations, though it maintained a Buy rating. Rosenblatt raised its price target to $295, acknowledging Cadence’s strong fourth-quarter results and the impact of its AI product SKUs on growth. Despite a strong performance, the company anticipates flat year-over-year performance in China for 2025, which has led to a cautious revenue guidance. Cadence’s acquisition of Secure-IC is expected to enhance its portfolio, particularly in the automotive, aerospace and defense, and data center markets.
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