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Why Cadence Design Systems Shares Soared 11%

By Brian D. Pacampara, CFA - Jul 28, 2015 at 11:20AM

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Is this meaningful? Or just another movement?

What: Shares of chip design technologist Cadence Design Systems (CDNS 0.52%) popped 11% on Tuesday after its quarterly results and outlook topped Wall Street estimates.

So what: Cadence shares have climbed steadily over the past year on better-than-expected trends within electronic design automation, and yesterday's Q2 results -- EPS of $0.27 topped estimates by $0.03 on a revenue increase of 9.8% -- coupled with upbeat full-year guidance only reinforce that momentum. In fact, management even announced a new and improved $1.2 billion stock repurchase program, replacing its existing $450 million program, fueling the notion among traders that shares remain attractively valued.

Now what: Management now sees full-year earnings of $1.00 to $1.06 per share on revenue of $1.685 billion to $1.715 billion, versus the consensus of $1.02 and $1.7 billion, respectively. "With the announcement of our new stock repurchase program, we continue to allocate capital to the highest return opportunities by investing in profitable growth, maintaining an efficient capital structure that provides necessary flexibility to meet the needs of the business and returning capital to shareholders," said Senior Vice President and CFO Geoff Ribar. Of course, when you combine Cadence's red-hot stock price -- now up 35% from its 52-week lows -- with its exposure to the still highly volatile semiconductor sector, I'd wait for a pullback before buying into that bullishness. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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