JPMorgan has raised its outlook for Cadence Design Systems (CDNS, Financial), upgrading the stock from Neutral to Overweight and setting a new price target of $325, up from the previous $300. This revision comes in the wake of a year-to-date decline in the company's stock, which the firm suggests presents an appealing opportunity for investment in what it describes as a "high-quality defensive growth business."
The analyst, Harlan Sur, emphasizes that Cadence's defensive growth attributes are likely to gain traction with investors, particularly as economic conditions decelerate and the impact of tariffs remains minimal. In alignment with this strategic positioning, Cadence began the year with a cautious revenue growth projection of 11% to 12% for 2025, which JPMorgan believes reinforces its potential as a stable investment choice.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 19 analysts, the average target price for Cadence Design Systems Inc (CDNS, Financial) is $310.88 with a high estimate of $355.00 and a low estimate of $200.00. The average target implies an upside of 17.13% from the current price of $265.42. More detailed estimate data can be found on the Cadence Design Systems Inc (CDNS) Forecast page.
Based on the consensus recommendation from 21 brokerage firms, Cadence Design Systems Inc's (CDNS, Financial) average brokerage recommendation is currently 2.0, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Cadence Design Systems Inc (CDNS, Financial) in one year is $333.49, suggesting a upside of 25.65% from the current price of $265.42. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Cadence Design Systems Inc (CDNS) Summary page.
CDNS Key Business Developments
Release Date: February 18, 2025
- Revenue Growth: 13.5% for the year.
- Non-GAAP Operating Margin: 42.5% for the year.
- Record Backlog: $6.8 billion at year-end.
- Total Revenue: $1.356 billion for Q4; $4.641 billion for the year.
- GAAP Operating Margin: 33.7% for Q4; 29.1% for the year.
- Non-GAAP Operating Margin (Q4): 46%.
- GAAP EPS: $1.24 for Q4; $3.85 for the year.
- Non-GAAP EPS: $1.88 for Q4; $5.97 for the year.
- Cash Balance: $2.644 billion at year-end.
- Operating Cash Flow: $441 million for Q4; $1.261 billion for the year.
- Debt Outstanding: $2.500 billion principal value.
- Share Repurchase: $550 million used during the year.
- 2025 Revenue Guidance: $5.14 billion to $5.22 billion.
- 2025 Non-GAAP EPS Guidance: $6.65 to $6.75.
- Q1 2025 Revenue Guidance: $1.23 billion to $1.25 billion.
- Q1 2025 Non-GAAP EPS Guidance: $1.46 to $1.52.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cadence Design Systems Inc (CDNS, Financial) reported a 13.5% revenue growth and a 42.5% non-GAAP operating margin for 2024.
- The company exited 2024 with a record backlog of $6.8 billion, indicating strong demand for its AI-driven chip-to-systems portfolio.
- Cadence's AI-powered products, such as Cadence Cerebrus, SimAI, and Allegro X AI, are gaining strong momentum with market-shaping customers.
- The system design and analysis business achieved over 40% growth in 2024, driven by a rapidly expanding customer base across multiple verticals.
- Cadence's IP business grew 28% year-over-year in Q4, with significant expansions and competitive displacement at top-tier customers.
Negative Points
- The guidance for 2025 assumes flat revenue from China, reflecting uncertainty and potential headwinds in that market.
- Recurring revenue growth is expected to decelerate, partly due to the assumption of flat China revenue and the strength of upfront revenue businesses.
- The core EDA growth in 2024 was in the high-single-digit range, impacted by a down year in China and a transition year for hardware.
- The company's current RPO growth progressively slowed over the course of the year, indicating potential challenges in maintaining growth momentum.
- Visibility into the hardware pipeline for the second half of 2025 is limited, which could impact future revenue projections.
