Gauging Cadence Design Systems’ Risk Factors

Shares of computational software provider Cadence Design Systems, Inc. (CDNS) have gained 53.3% in the past 12 months. This week, Cadence delivered a better-than-expected set of third-quarter Fiscal 2021 numbers and raised its outlook.

Let’s have a look at Cadence’s Q3 performance and understand what has changed in its key risk factors that investors should know.

Growth across both Product and Maintenance, and Services segments contributed to a 12.6% year-over-year increase in revenue, which came in at $750.9 million, outperforming consensus estimates by $9 million.

Operating margin expanded to 26%, as compared to 25% a year ago. Earnings of $0.80 per share surpassed the Street’s estimate by $0.05 per share. Cadence had reported earnings of $0.70 per share in the year-ago period.

The President of Cadence, Anirudh Devgan, said, “Delighting customers and accelerating growth requires a relentless commitment to innovation. Our innovation pipeline continued to deliver, as we introduced four additional significant new products this quarter, including the revolutionary Integrity 3D-IC Platform.” (See Insiders’ Hot Stocks on TipRanks)

Cadence has raised its outlook for Fiscal 2021. It anticipates revenue landing between $2.96 billion and $2.98 billion and earnings in the range of $3.24 per share to $3.28 per share.

On October 26, Robert W. Baird analyst Joseph Vruwink assigned a Buy rating to the stock and increased the price target to $190 from $168. Vruwink sees upside to the company’s top-line and an opportunity for margin gains.

Consensus on the Street is a Moderate Buy based on 5 Buys, 3 Holds, and 1 Sell. The average Cadence Design price target of $178.78 implies downside potential of 5.8% for the stock.

Now, let’s have a look at what has changed in the company’s key risk factors.

According to the new Tipranks’ Risk Factors tool, Cadence’s top risk category is Finance & Corporate, which accounts for 38% of the total 40 risks identified. In its recent third-quarter report, the company has added one key risk factor under the Legal & Regulatory risk category.

Cadence highlights that it is subject to export and import controls and has to comply with regulations associated with selling or shipping goods and transferring technology outside the U.S. or to foreign nationals.

Additionally, developments such as tariffs, trade protection measures, import or export licensing requirements, sanctions, trade embargoes and other barriers to trade could adversely affect the company’s business, results and financials.

In February, Cadence had received an administrative subpoena from the Bureau of Industry and Security (BIS), requesting records associated with certain sales to China. The company is cooperating. It is in the process of responding to the subpoena and is also conducting an internal review.

The Legal & Regulatory risk factor’s sector average is at 20%, compared to Cadence’s 10%.