Cadence Design Systems, Inc. Just Beat Earnings Expectations: Here's What Analysts Think Will Happen Next

Shareholders might have noticed that Cadence Design Systems, Inc. (NASDAQ:CDNS) filed its quarterly result this time last week. The early response was not positive, with shares down 9.2% to US$283 in the past week. It looks like a credible result overall - although revenues of US$1.1b were in line with what the analysts predicted, Cadence Design Systems surprised by delivering a statutory profit of US$0.84 per share, a notable 10% above expectations. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

See our latest analysis for Cadence Design Systems

After the latest results, the 16 analysts covering Cadence Design Systems are now predicting revenues of US$4.62b in 2024. If met, this would reflect a notable 11% improvement in revenue compared to the last 12 months. Statutory earnings per share are predicted to increase 4.2% to US$4.01. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$4.60b and earnings per share (EPS) of US$4.11 in 2024. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a minor downgrade to their earnings per share forecasts.

It might be a surprise to learn that the consensus price target was broadly unchanged at US$324, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Cadence Design Systems analyst has a price target of US$355 per share, while the most pessimistic values it at US$240. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's clear from the latest estimates that Cadence Design Systems' rate of growth is expected to accelerate meaningfully, with the forecast 23% annualised revenue growth to the end of 2024 noticeably faster than its historical growth of 13% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 12% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Cadence Design Systems to grow faster than the wider industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Cadence Design Systems. Fortunately, they also reconfirmed their revenue numbers, suggesting that it's tracking in line with expectations. Additionally, our data suggests that revenue is expected to grow faster than the wider industry. The consensus price target held steady at US$324, with the latest estimates not enough to have an impact on their price targets.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Cadence Design Systems going out to 2026, and you can see them free on our platform here.

You can also view our analysis of Cadence Design Systems' balance sheet, and whether we think Cadence Design Systems is carrying too much debt, for free on our platform here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com