Cadence Design Systems Inc (CDNS)

[ScovilleUnits]

barrons.com - October 23, 2008, 12:23 pm

Cadence: The Street Gives Up
Posted by Eric Savitz
Investors have thrown in the towel on Cadence Design Systems (CDNS).

Just a week after the board booted most of senior management, the company yesterday disclosed some serious revenue recognition issues. While the company confirmed its previous Q3 guidance, the Street has obviously lost all faith in Cadence, and the stock has cratered.

Citigroup’s Terence Whalen today cut his rating on the stock to Hold from Buy, lowering his price target on the shares to $5.50 from $11.50. He says that the accounting freeze stops the company from buying back stock and “casts doubt” on results and the guidance. And he says the management exodus “was deeper and potentially more disruptive than we expected.” He cut his 2008 EPS estimate to break even from a profit of 3 cents; for ‘09 he now sees a loss of 9 cents, down from break even.

Mahesh Sanganeria, of RBC Capital, now gets a chance to gloat: he already had an Underperform rating and $3 target on the stock. “We could be looking at a slippery slope” it the review extends beyond the issues with Q1 revenues that were disclosed yesterday. “A review covering periods involving changes to revenue recognition models could open a can of worms,” he writes. “A prolonged review resulting in non-filing of financials would have serious consequences.” Sanganeria also warns that “a massive head count reduction remains in the offing.”

Raj Seth, of Cowen, remains Neutral on the stock, and says that “despite a very, very depressed-looking valuation, we see no need to step up till the dust clears.”

Deutsche Bank’s Tim Fox repeated his Hold rating today, and cut his target to $5 from $13. “Cadence faces an uphill battle as it attempts to right-size the company without damaging its core franchise long term,” he writes. “With semiconductor end-markets softening, an impending restructuring to manage through and replacement of senior management to tackle, we are cautious on the timing of a turnaround.”

CDNS today has dropped $1.79, or 41.4%, to $2.53.

http://blogs.barrons.com/techtraderdaily/2008/10/23/cadence-the-street-gives-up/