WSJ's coverage of today's news...
August 31, 1999
Tech Stocks
Cadence Gains as Analyst
Sees Better Days Ahead
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- Shares of Cadence Design Systems surged Tuesday after an analyst at BancBoston Robertson Stephens predicted an end to the sharp decline the company's shares have seen in recent months.
In New York Stock Exchange trading, shares of Cadence rose 1 1/2, or 12%, to close at 13 5/8.
Meanwhile, the Nasdaq Composite Index gained 26.66 to close at 2739.35 and Morgan Stanley's high-tech 35 index rose 17.73 to 1194.46. The Dow Jones Internet Index gained 4.84 to 213.37.
Cadence makes software used to design and test semiconductors, known as electronic design automation, or EDA, tools. It is a leader in the industry, but its shares have sunk in recent weeks since the company reported that earnings and revenue would be flat for this year. On Aug. 11, Cadence shares hit a 52-week low of 9 3/16.
But BancBoston's Arnab Chanda said he believes it may be time for a rebound in the shares in part because Cadence, of San Jose, Calif., appears to be on track to convert more of its customers to a more predictable subscription-based sales model. He raised his rating on the company to "buy" from "long-term attractive."
The company's goal was to have 30% of product bookings done on the subscription model by the end of the third quarter and "we're getting the sense that the company is meeting its plan," Mr. Chanda said. Sales should decline at first: With the subscription model, not all the revenue from a deal is booked up front. But in the long term, the new model should help analysts more easily predict how the company is doing.
Another reason to buy Cadence shares is that they are cheap compared to those of its closest rival, Synopsys, Mr. Chanda said. Currently, Cadence shares trade at about 2.5 times the previous four quarters of sales, compared with 5.1 times trailing sales for Synopsys.
Mr. Chanda added that he believes Cadence has a good pipeline of new products and should benefit from expected growth in the overall EDA market. Other analysts, however, are taking more of a wait-and-see attitude for the moment.
Of the 13 analysts who cover the company, one has it rated "strong buy" and two -- including Mr. Chanda -- have it rated "buy." Ten analysts have it rated "hold," according to a survey by First Call/Thomson Financial.
Raj Seth, an analyst at SG Cowen & Co. said the company is certainly on course for a turnaround, but that it may take some time to get there. He has the stock rated "neutral" -- the equivalent of a "hold" -- but said the long-term picture is positive.
"It'll take some time, but Cadence continues to have tremendous franchise value," he said.
|
