CDNS: 3 Buy-rated Software Stocks to Consider Adding to Your Portfolio

The COVID-19 pandemic has caused various industries and businesses to depend on a cloud-based infrastructure to remain operational, thus fueling the growth of the software application industry last year. This has, in turn, resulted in a substantial rise in productivity and decline in overhead for many companies. Consequently, many companies now plan to continue with hybrid working models for the long term.

The global software industry is expected to grow at a CAGR of 7.4% over the next five years to hit a market volume of $772. 45 billion by 2025. Therefore, we think it is wise to invest in budding software stocks such as Cadence Design Systems, Inc. (CDNS), Manhattan Associates, Inc. (MANH) and eGain Corporation (EGAN).

These names are continuously developing innovative products to expand their market reach and attract investments to stay ahead of their peers.

Click here to check out our Software Industry Report for 2021

Cadence Design Systems, Inc. (CDNS)

Headquartered in San Jose, California, CDNS provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company operates primarily through five product segments — Functional Verification, Digital Integrated Circuits (IC) Design and Signoff, Custom IC Design and Verification, System Interconnect and Analysis, and Intellectual Property (IP). In addition, the company offers services related to methodology, education, and hosted design solutions, technical support and maintenance services.

CDNS completed the acquisition of NUMECA International in February . NUMECA’s technologies and talent support CDNS’ Intelligent System Design strategy and broadens its system analysis portfolio with computational fluid dynamics (CFD) solutions. In December, CDNS announced that Samsung Foundry had certified its complete Cadence system analysis and advanced packaging design tool flow as a Samsung Multi-Die Integration (MDI) advanced packaging reference flow. Also in December, Samsung Foundry adopted the company’s Cadence Spectre X Simulator for its latest 5nm PCI Express (PCIe) PHY IP for automotive, mobile, consumer and healthcare applications.

The company’s revenue for the fiscal 2020 fourth quarter, ended January 2, 2021, was $759.91 million, which represents an improvement of 26.7% year-over-year. CDNS’ non-GAAP net income came in at $233.87 million for the quarter, up 54.3% year-over-year. Income from operations increased 69.9% year-over-year to $184.98 million. Its non-GAAP operating margin was 37% for the quarter compared to 31% for the fourth quarter of 2019. And its non-GAAP EPS increased 53.7% year-over-year to $0.83.

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A consensus EPS estimate of $0.75 for the current quarter, ending March 31, 2021, represents a 25% improvement year-over-year. Also, CDNS has surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $717.95 million for the current quarter represents a 16.2% rise year-over-year. CDNS has gained 83.3% over the past year and closed yesterday’s trading session at $128.81.

CDNS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has an A grade for Quality, and B for both Sentiment and Momentum. We have also graded CDNS for Value, Growth and Stability. Click here to access all of CDNS’ ratings.

CDNS is ranked #11 out of 111 stocks in the Software – Application Industry.

Manhattan Associates, Inc. (MANH)

Founded in 1990, MANH operates as a developer and provider of supply chain commerce solutions for retailers, wholesalers, manufacturers, logistics providers and other organizations. The company operates through three geographical segments — Americas, Europe, Middle East and Africa (EMEA), and the Asia Pacific (APAC). MANH’s solutions include software, services and hardware, which coordinate people, workflows, assets, events and tasks across the functions linked in a supply chain from planning through execution. Its supply chain solutions consist of three components — Distribution Management, Transportation Management and Visibility.

MANH announced in December that Decathlon China has launched the MANH’s SCALE solution across three of its B2C e-commerce warehouses in mainland China, which is expected to enable Decathlon China to streamline its r ecommerce order fulfillment capabilities and improve the efficiency of its supply chain and distribution networks. MANH also introduced Manhattan Active Allocation in October, which is the first allocation solution specifically engineered for today’s omnichannel marketplace.

Moreover, L’Oreal (LRLCY) chose to implement MANH’s Manhattan Active Warehouse Management which is a global, scalable and agile SaaS-based solution. The first implementation is due to be launched by mid-2021, and worldwide deployment across LRLCY’s distribution centers is expected by the end of 2023.

The company’s revenue from the cloud subscriptions for the fourth quarter, ended December 31, 2020, was $23 million, which represents an improvement of 46.3% year-over-year. MANH’s revenue from software licenses also increased 4.3% year-over-year to $9.64 million. Its non-GAAP operating income increased 12.6% year-over-year to $37.59 million and its non-GAAP net income increased 10% year-over-year to $28.81 million. Also, its non-GAAP EPS increased 12.5% year-over-year to $0.45.

A consensus EPS estimate of $1.73 for its fiscal 2022 represents a 13.1% improvement year-over-year. Also, MANH has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $151.60 million for the quarter ending June 30, 2021 represents a 19.1% rise year-over-year. MANH has gained 66.5% over the past year and closed yesterday’s trading session at $114.36.

MANH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

The stock has an A grade for Quality, and a B for both Sentiment and Momentum. We have also graded MANH for Value, Growth and Stability. Click here to access all MANH’s ratings.

MANH is ranked #22 in the same industry.

eGain Corporation (EGAN)

Headquartered in Sunnyvale, California, EGAN is a software-as-a service (SaaS) provider of customer engagement solutions. The company has operations in the United States, the United Kingdom and India. Its suite includes various applications for digital interaction, knowledge management, and AI-based process guidance. EGAN also offers subscription services and customer support services, and consulting, implementation, and training services. EGAN serves customers in various industry sectors, including the financial services, telecommunications, retail, government, healthcare, and utilities.

On March 2, EGAN, along with GreenPath Financial Wellness, launched the Virtual Financial Coach, which is a unique, turnkey solution for financial counseling automation. It uses EGAN’s digital engagement automation technology, which is powered by Artificial Intelligence (AI) and Machine Learning (ML). Inforgrain announced a professional services partnership with EGAN in December. This partnership is expected to help drive joint customer acquisition and scale-up implementation services to help clients.

The company also introduced its SmartIVR solution in November, which is an all-in-one solution to modernize IVR-based customer engagement. Also, a global automaker selected EGAN in November to enable unified customer messaging and engagement automation.

The company’s total revenue increased 5.9% year-over-year to $19.23 million for its fiscal 2021 second quarter. The company’s revenue from the SaaS segment came in at $16.18 million, which represents an improvement of 15.2% year-over-year. Its total gross margin was 76%, up 500 basis points on a year-over-year basis. EGAN’s total assets were $93.95 million, up 1.9% year-over-year.

Analysts expect the company’s EPS to increase at a rate of 10% per annum over the next five years. Also, EGAN has surpassed consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $85.61 million for its fiscal 2022 represents a 12.1% rise year-over-year. EGAN has gained 23.8% over the past year and closed yesterday’s trading session at $9.95.

EGAN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

The stock has a B grade for Quality, Value, Sentiment and Momentum. We have also graded EGAN for Growth and Stability. Click here to access all EGAN’s ratings.

EGAN is ranked #20 in the same industry.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Click here to check out our Software Industry Report for 2021

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CDNS shares were unchanged in after-hours trading Friday. Year-to-date, CDNS has declined -7.14%, versus a 2.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...