Cadence Design Systems, Inc CDNS is scheduled to release fourth-quarter 2024 results on Feb. 18.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The Zacks Consensus Estimate for fourth-quarter 2024 earnings has been unchanged in the past 60 days at $1.82 per share. The consensus mark implies an increase of 31.9% from the year-ago actual. The Zacks Consensus Estimate for fourth-quarter 2024 revenues is pegged at $1.35 billion, indicating a 26.1% uptick from the year-ago actual.

For the fourth quarter of 2024, CDNS expects revenues to be in the $1.325-$1.365 billion band. Non-GAAP EPS for the fourth quarter is anticipated to be between $1.78 and $1.84.

Price Performance

Image Source: Zacks Investment Research

Cadence has an impressive earnings surprise history. In the trailing four quarters, the company’s earnings outpaced the Zacks Consensus Estimate, with an average beat of 6.1%.

The stock has performed less impressively on the trading front than its industry. CDNS stock has gained 1.7% in the past year compared with its Computer-Software industry’s 7.9% growth. The S&P 500 composite and the Zacks Computer and Technology sector have risen 26.1% and 23.2%, respectively, in the same time frame.

Factors Shaping CDNS’ Q4 Results

Design activity across several verticals, especially data centers and automotive, has been robust due to transformative generational trends, such as artificial intelligence (“AI”), hyperscale computing, 5G and autonomous driving. Customers have been significantly increasing their R&D budgets in AI-driven automation. This is likely to have driven demand for Cadence’s solutions in the to-be-reported quarter.

CDNS’ solutions have been also witnessing rapid uptake as system companies continue to build their next-gen AI and agentic-AI products, amid increasing chip complexity. In the last reported quarter, CDNS noted that sales of its Cadence.AI portfolio (powered by GenAI, AI-driven optimization and JedAI platform) nearly tripled year over year.  CDNS also launched Cadence OnCloud Marketplace and Cadence Online Support through OnCloud, which uses GenAI technology to provide insightful responses to customer queries.

Collaborations with the likes of NVIDIA, Taiwan Semiconductor Manufacturing Company and ARM Holdings augur well.

The System Design and Analysis division is likely to have gained from increasing demand for solutions like Allegro X, Digital Twin platform, Clarity and Celsius, and the acquisition of BETA CAE. Our estimate for revenues from System Design and Analysis is pegged at $192.3 million, indicating year-over-year growth of 49.9%.

Core electronic design automation or EDA business (which constitutes Custom IC, Digital IC and Functional Verification businesses) is likely to have gained from demand for the new hardware systems, along with the rapid adoption of digital full-flow solutions and Virtuoso Studio. The new hardware is likely to have witnessed increasing demand, particularly from AI, hyperscale and automotive clients.

Cadence Design Systems, Inc. Price and EPS Surprise

Cadence Design Systems, Inc. price-eps-surprise | Cadence Design Systems, Inc. Quote

Our estimate for revenues from the Functional Verification, including the Emulation and Prototyping Hardware segment, is pegged at $345.6 million, up 34.8%.

Our estimate for revenues from the Digital IC Design and Signoff segment is pegged at $343.9 million, implying year-over-year growth of 11%.

We expect Custom IC business segment revenues from this business to have risen 16.8% year over year to $274.5 million in the fourth quarter.

Opportunities presented by AI use cases, HPC and heterogenous integration are likely to have cushioned the performance of the IP business division. We expect revenues to have risen 36.3% to $189.3 million on a year-over-year basis in the to-be-reported quarter.

Ongoing uncertainty prevailing over global macroeconomic conditions and inflation is concerning. Higher operating costs are added concerns. Cadence faces stiff competition in the EDA space. Intensifying competition has negatively impacted pricing power, which has kept margins under pressure.

Earnings Whispers for CDNS

Our proven model does not predict an earnings beat for Cadence this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

CDNS currently has a Zacks Rank #4 (Sell) and an Earnings ESP of +3.05%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Stocks to Consider

Here are a few stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this season.

Freshpet, Inc. FRPT currently has an Earnings ESP of +14.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

FRPT is scheduled to report quarterly earnings on Feb. 20. The Zacks Consensus Estimate for FRPT to-be-reported quarter’s earnings and revenues is pegged at 44 cents per share and $263.5 million, respectively. Shares of FRPT have gained 44.6% in the past year.

Savers Value Village, Inc. SVV presently has an Earnings ESP of +2.85% and a Zacks Rank #2. SVV is scheduled to report quarterly numbers on Feb. 20. The Zacks Consensus Estimate for SVV’s to-be-reported quarter’s earnings and revenues is pegged at 12 cents per share and $402 million, respectively. Shares of SVV have declined 42.9% in the past year.

Sprouts Farmers Market, Inc. SFM has an Earnings ESP of +9.58% and a Zacks Rank #2 at present. SFM is scheduled to report quarterly figures on Feb. 20. The Zacks Consensus Estimate for SFM’s to-be-reported quarter’s earnings and revenues is pegged at 72 cents per share and $1.95 billion, respectively. Shares of SFM have increased 235.2% in the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Freshpet, Inc. (FRPT) : Free Stock Analysis Report

Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report

Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report

Savers Value Village, Inc. (SVV) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research