Intrinsic value of Cadence Design Systems, Inc. - CDNS

Previous Close

$61.76

  Intrinsic Value

$36.92

stock screener

  Rating & Target

sell

-40%

Previous close

$61.76

 
Intrinsic value

$36.92

 
Up/down potential

-40%

 
Rating

sell

We calculate the intrinsic value of CDNS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 17.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
Revenue, $m
  2,429
  2,738
  3,066
  3,411
  3,774
  4,155
  4,552
  4,967
  5,400
  5,849
  6,317
  6,804
  7,309
  7,834
  8,380
  8,948
  9,538
  10,151
  10,790
  11,455
  12,147
  12,869
  13,621
  14,406
  15,225
  16,081
  16,974
  17,907
  18,883
  19,904
Variable operating expenses, $m
  1,527
  1,718
  1,921
  2,134
  2,359
  2,594
  2,839
  3,096
  3,363
  3,641
  3,905
  4,206
  4,518
  4,843
  5,180
  5,531
  5,896
  6,275
  6,670
  7,081
  7,509
  7,955
  8,420
  8,905
  9,412
  9,940
  10,493
  11,070
  11,673
  12,304
Fixed operating expenses, $m
  414
  423
  432
  442
  452
  461
  472
  482
  493
  503
  515
  526
  537
  549
  561
  574
  586
  599
  612
  626
  640
  654
  668
  683
  698
  713
  729
  745
  761
  778
Total operating expenses, $m
  1,941
  2,141
  2,353
  2,576
  2,811
  3,055
  3,311
  3,578
  3,856
  4,144
  4,420
  4,732
  5,055
  5,392
  5,741
  6,105
  6,482
  6,874
  7,282
  7,707
  8,149
  8,609
  9,088
  9,588
  10,110
  10,653
  11,222
  11,815
  12,434
  13,082
Operating income, $m
  488
  597
  713
  835
  964
  1,100
  1,241
  1,389
  1,544
  1,705
  1,898
  2,072
  2,253
  2,442
  2,639
  2,843
  3,055
  3,277
  3,508
  3,748
  3,999
  4,260
  4,533
  4,818
  5,116
  5,427
  5,752
  6,093
  6,449
  6,822
EBITDA, $m
  596
  715
  842
  976
  1,118
  1,266
  1,421
  1,583
  1,752
  1,928
  2,112
  2,303
  2,501
  2,708
  2,922
  3,146
  3,379
  3,621
  3,873
  4,136
  4,410
  4,696
  4,994
  5,306
  5,632
  5,972
  6,327
  6,699
  7,089
  7,496
Interest expense (income), $m
  21
  24
  33
  42
  52
  62
  73
  84
  96
  108
  121
  135
  149
  163
  178
  194
  210
  227
  245
  263
  282
  302
  322
  344
  366
  390
  414
  440
  466
  494
  523
Earnings before tax, $m
  464
  565
  671
  784
  902
  1,027
  1,157
  1,293
  1,435
  1,584
  1,763
  1,923
  2,090
  2,264
  2,445
  2,633
  2,828
  3,032
  3,245
  3,466
  3,697
  3,938
  4,189
  4,452
  4,726
  5,013
  5,313
  5,627
  5,955
  6,299
Tax expense, $m
  125
  152
  181
  212
  244
  277
  312
  349
  388
  428
  476
  519
  564
  611
  660
  711
  764
  819
  876
  936
  998
  1,063
  1,131
  1,202
  1,276
  1,353
  1,434
  1,519
  1,608
  1,701
Net income, $m
  339
  412
  490
  572
  659
  750
  845
  944
  1,048
  1,156
  1,287
  1,404
  1,526
  1,653
  1,785
  1,922
  2,065
  2,214
  2,369
  2,530
  2,699
  2,875
  3,058
  3,250
  3,450
  3,659
  3,878
  4,107
  4,347
  4,598

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,805
  3,162
  3,540
  3,939
  4,358
  4,798
  5,257
  5,736
  6,235
  6,755
  7,295
  7,856
  8,440
  9,047
  9,677
  10,332
  11,013
  11,722
  12,459
  13,227
  14,027
  14,860
  15,729
  16,635
  17,581
  18,569
  19,600
  20,678
  21,805
  22,984
Adjusted assets (=assets-cash), $m
  2,805
  3,162
  3,540
  3,939
  4,358
  4,798
  5,257
  5,736
  6,235
  6,755
  7,295
  7,856
  8,440
  9,047
  9,677
  10,332
  11,013
  11,722
  12,459
  13,227
  14,027
  14,860
  15,729
  16,635
  17,581
  18,569
  19,600
  20,678
  21,805
  22,984
Revenue / Adjusted assets
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
Average production assets, $m
  806
  909
  1,018
  1,133
  1,253
  1,379
  1,511
  1,649
  1,793
  1,942
  2,097
  2,259
  2,427
  2,601
  2,782
  2,971
  3,166
  3,370
  3,582
  3,803
  4,033
  4,272
  4,522
  4,783
  5,055
  5,339
  5,635
  5,945
  6,269
  6,608
Working capital, $m
  -216
  -244
  -273
  -304
  -336
  -370
  -405
  -442
  -481
  -521
  -562
  -606
  -651
  -697
  -746
  -796
  -849
  -903
  -960
  -1,019
  -1,081
  -1,145
  -1,212
  -1,282
  -1,355
  -1,431
  -1,511
  -1,594
  -1,681
  -1,771
Total debt, $m
  606
  776
  957
  1,148
  1,348
  1,558
  1,778
  2,007
  2,245
  2,494
  2,752
  3,020
  3,299
  3,589
  3,891
  4,204
  4,529
  4,868
  5,221
  5,588
  5,970
  6,368
  6,783
  7,217
  7,669
  8,141
  8,634
  9,149
  9,688
  10,251
Total liabilities, $m
  1,341
  1,511
  1,692
  1,883
  2,083
  2,293
  2,513
  2,742
  2,980
  3,229
  3,487
  3,755
  4,034
  4,324
  4,626
  4,939
  5,264
  5,603
  5,956
  6,323
  6,705
  7,103
  7,518
  7,952
  8,404
  8,876
  9,369
  9,884
  10,423
  10,986
Total equity, $m
  1,464
  1,651
  1,848
  2,056
  2,275
  2,504
  2,744
  2,994
  3,255
  3,526
  3,808
  4,101
  4,406
  4,722
  5,051
  5,393
  5,749
  6,119
  6,504
  6,905
  7,322
  7,757
  8,210
  8,684
  9,177
  9,693
  10,231
  10,794
  11,382
  11,998
Total liabilities and equity, $m
  2,805
  3,162
  3,540
  3,939
  4,358
  4,797
  5,257
  5,736
  6,235
  6,755
  7,295
  7,856
  8,440
  9,046
  9,677
  10,332
  11,013
  11,722
  12,460
  13,228
  14,027
  14,860
  15,728
  16,636
  17,581
  18,569
  19,600
  20,678
  21,805
  22,984
Debt-to-equity ratio
  0.410
  0.470
  0.520
  0.560
  0.590
  0.620
  0.650
  0.670
  0.690
  0.710
  0.720
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.800
  0.810
  0.820
  0.820
  0.830
  0.830
  0.840
  0.840
  0.840
  0.850
  0.850
  0.850
Adjusted equity ratio
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  339
  412
  490
  572
  659
  750
  845
  944
  1,048
  1,156
  1,287
  1,404
  1,526
  1,653
  1,785
  1,922
  2,065
  2,214
  2,369
  2,530
  2,699
  2,875
  3,058
  3,250
  3,450
  3,659
  3,878
  4,107
  4,347
  4,598
Depreciation, amort., depletion, $m
  108
  118
  129
  141
  153
  166
  180
  194
  208
  223
  214
  230
  248
  265
  284
  303
  323
  344
  366
  388
  412
  436
  461
  488
  516
  545
  575
  607
  640
  674
Funds from operations, $m
  446
  530
  619
  713
  812
  916
  1,024
  1,138
  1,256
  1,379
  1,501
  1,635
  1,774
  1,918
  2,069
  2,225
  2,388
  2,557
  2,734
  2,918
  3,110
  3,310
  3,519
  3,738
  3,966
  4,204
  4,453
  4,714
  4,987
  5,272
Change in working capital, $m
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -50
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
Cash from operations, $m
  472
  558
  648
  744
  844
  950
  1,060
  1,175
  1,295
  1,419
  1,543
  1,678
  1,819
  1,965
  2,117
  2,276
  2,440
  2,612
  2,791
  2,977
  3,172
  3,375
  3,586
  3,808
  4,039
  4,280
  4,533
  4,797
  5,074
  5,363
Maintenance CAPEX, $m
  -72
  -82
  -93
  -104
  -116
  -128
  -141
  -154
  -168
  -183
  -198
  -214
  -230
  -248
  -265
  -284
  -303
  -323
  -344
  -366
  -388
  -412
  -436
  -461
  -488
  -516
  -545
  -575
  -607
  -640
New CAPEX, $m
  -96
  -103
  -109
  -115
  -121
  -126
  -132
  -138
  -144
  -149
  -155
  -161
  -168
  -174
  -181
  -188
  -196
  -204
  -212
  -221
  -230
  -240
  -250
  -261
  -272
  -284
  -297
  -310
  -324
  -339
Cash from investing activities, $m
  -168
  -185
  -202
  -219
  -237
  -254
  -273
  -292
  -312
  -332
  -353
  -375
  -398
  -422
  -446
  -472
  -499
  -527
  -556
  -587
  -618
  -652
  -686
  -722
  -760
  -800
  -842
  -885
  -931
  -979
Free cash flow, $m
  304
  373
  447
  525
  608
  695
  787
  883
  983
  1,087
  1,189
  1,302
  1,420
  1,543
  1,670
  1,803
  1,941
  2,085
  2,235
  2,391
  2,554
  2,724
  2,901
  3,086
  3,279
  3,481
  3,691
  3,912
  4,143
  4,385
Issuance/(repayment) of debt, $m
  160
  171
  181
  191
  200
  210
  219
  229
  239
  248
  258
  268
  279
  290
  301
  313
  326
  339
  352
  367
  382
  398
  415
  433
  452
  472
  493
  515
  539
  563
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  160
  171
  181
  191
  200
  210
  219
  229
  239
  248
  258
  268
  279
  290
  301
  313
  326
  339
  352
  367
  382
  398
  415
  433
  452
  472
  493
  515
  539
  563
Total cash flow (excl. dividends), $m
  464
  543
  628
  716
  808
  905
  1,006
  1,112
  1,221
  1,335
  1,447
  1,571
  1,699
  1,833
  1,972
  2,116
  2,267
  2,424
  2,588
  2,758
  2,936
  3,122
  3,316
  3,519
  3,731
  3,953
  4,185
  4,427
  4,682
  4,948
Retained Cash Flow (-), $m
  -176
  -187
  -197
  -208
  -219
  -229
  -240
  -250
  -261
  -271
  -282
  -293
  -305
  -317
  -329
  -342
  -356
  -370
  -385
  -401
  -417
  -435
  -454
  -473
  -494
  -516
  -539
  -563
  -588
  -615
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  288
  357
  430
  508
  590
  676
  767
  862
  961
  1,064
  1,165
  1,278
  1,395
  1,516
  1,643
  1,774
  1,911
  2,054
  2,203
  2,357
  2,519
  2,687
  2,862
  3,046
  3,237
  3,437
  3,646
  3,865
  4,093
  4,333
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  276
  327
  374
  418
  457
  491
  518
  539
  552
  558
  553
  545
  530
  509
  482
  451
  416
  378
  339
  300
  261
  223
  188
  155
  126
  100
  78
  60
  45
  33
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Cadence Design Systems, Inc. provides solutions that enable its customers to design electronic products. The Company's product categories include Functional Verification, Digital integrated circuits (IC) Design and Signoff, Custom IC Design and Verification, System Interconnect and Analysis, and intellectual property (IP). Functional verification products are used to verify that the circuitry or the software designed will perform as intended. Digital IC design offerings are used to create representations of a digital circuit or an IC that can be verified for correctness prior to implementation. Custom IC design and verification offerings are used to create schematic and physical representations of circuits down to the transistor level for analog and memory designs. System Interconnect and Analysis offerings are used to develop printed circuit boards and IC packages. Design IP offerings consist of functional blocks, which customers integrate into their ICs for the development process.

FINANCIAL RATIOS  of  Cadence Design Systems, Inc. (CDNS)

Valuation Ratios
P/E Ratio 84.6
Price to Sales 9.5
Price to Book 23.1
Price to Tangible Book
Price to Cash Flow 38.6
Price to Free Cash Flow 43.9
Growth Rates
Sales Growth Rate 6.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 86.7%
Total Debt to Equity 93.4%
Interest Coverage 12
Management Effectiveness
Return On Assets 9.9%
Ret/ On Assets - 3 Yr. Avg. 8.5%
Return On Total Capital 12.9%
Ret/ On T. Cap. - 3 Yr. Avg. 11.8%
Return On Equity 19.2%
Return On Equity - 3 Yr. Avg. 16.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 85.9%
Gross Margin - 3 Yr. Avg. 85.9%
EBITDA Margin 20.8%
EBITDA Margin - 3 Yr. Avg. 21.4%
Operating Margin 13.5%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 13.1%
Pre-Tax Margin - 3 Yr. Avg. 13.4%
Net Profit Margin 11.2%
Net Profit Margin - 3 Yr. Avg. 12%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 10.8%
Payout Ratio 0%

CDNS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CDNS stock intrinsic value calculation we used $2138 million for the last fiscal year's total revenue generated by Cadence Design Systems, Inc.. The default revenue input number comes from 0001 income statement of Cadence Design Systems, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CDNS stock valuation model: a) initial revenue growth rate of 13.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CDNS is calculated based on our internal credit rating of Cadence Design Systems, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cadence Design Systems, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CDNS stock the variable cost ratio is equal to 63%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $405 million in the base year in the intrinsic value calculation for CDNS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Cadence Design Systems, Inc..

Corporate tax rate of 27% is the nominal tax rate for Cadence Design Systems, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CDNS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CDNS are equal to 33.2%.

Life of production assets of 9.8 years is the average useful life of capital assets used in Cadence Design Systems, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CDNS is equal to -8.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1288.401 million for Cadence Design Systems, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 280.374 million for Cadence Design Systems, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cadence Design Systems, Inc. at the current share price and the inputted number of shares is $17.3 billion.

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