On Monday, KeyBanc Capital Markets adjusted its outlook on Cadence Design (NASDAQ:CDNS) Systems, Inc. (NASDAQ:CDNS), a prominent player in the electronic design automation (EDA) sector. The firm increased its price target on the stock to $340 from the previous $335, while maintaining an Overweight rating.
The adjustment follows the recent investor day held by Synopsys (NASDAQ:SNPS) on March 20, 2024, where the company provided updated second-quarter and full-year 2024 guidance, excluding considerations from the SIG acquisition.
Synopsys' announcement included a raised forecast for its yearly growth, attributed to the strength in EDA and intellectual property (IP) demand. This development is seen as a positive indicator for the EDA and IP market demand, which is expected to benefit Cadence Design Systems.
KeyBanc anticipates that Cadence Design could surpass expectations in the first quarter and that its guidance for organic growth in 2024 might see a modest increase. The firm also suggests that while the backlog is expected to remain relatively flat year-over-year and might slightly contract quarter-over-quarter, any expansion beyond $6 billion would be considered a very positive sign for the company.
In its commentary, KeyBanc highlighted the substantial opportunities for Cadence Design in areas such as artificial intelligence (AI) and 3D integrated circuits (3D-IC).
The firm's raised price target reflects increased confidence in the company's potential, suggesting that Cadence Design Systems should be viewed as a core holding within investment portfolios. The positive outlook ahead of the company's earnings report signals a belief in continued demand and growth within the EDA and IP segments.
InvestingPro Insights
In light of KeyBanc Capital Markets' recent price target adjustment for Cadence Design Systems, Inc. (NASDAQ:CDNS), current InvestingPro data provides additional context for investors. Cadence boasts a robust gross profit margin of 89.36% over the last twelve months as of Q4 2023, underscoring the company's efficiency in its operations. Additionally, the company has experienced a significant revenue growth of 14.83% during the same period, reflecting the strong demand in the EDA and IP market that KeyBanc anticipates will continue.
Despite strong fundamentals, investors should be aware of the company's current valuation multiples. Cadence is trading at a high earnings multiple with a P/E ratio of 78.84 and a Price/Book ratio of 24.58, which may suggest a premium pricing relative to near-term earnings growth. Moreover, 8 analysts have revised their earnings estimates downwards for the upcoming period, a factor that should be considered when evaluating the stock's future performance.
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