DCF Studio

    CDNS · NMS · Technology

    Cadence Design Systems, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 89.47

    Market price

    USD 282.90

    Implied upside

    -68.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Current EV/EBITDA of 41.1x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 89.47-68.4%
    Exit multiple
    USD 190.88-32.5%
    Market price
    USD 282.90

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 6.0bnUSD 6.9bnUSD 7.9bnUSD 9.0bnUSD 10.3bn+14.1%
    EBITUSD 1.8bnUSD 2.1bnUSD 2.4bnUSD 2.7bnUSD 3.1bn+14.1%
    NOPATUSD 1.5bnUSD 1.7bnUSD 1.9bnUSD 2.2bnUSD 2.5bn+14.1%
    Add depreciation & amortisationUSD 241.6mUSD 275.7mUSD 314.7mUSD 359.2mUSD 410.1m+14.1%
    Less capital expenditureUSD -177.5mUSD -202.6mUSD -231.3mUSD -264.0mUSD -301.3m+14.1%
    Less increase in working capitalUSD -140.1mUSD -159.9mUSD -182.5mUSD -208.3mUSD -237.8m+14.1%
    Free cashflow to firmUSD 1.4bnUSD 1.6bnUSD 1.8bnUSD 2.1bnUSD 2.3bn+14.1%
    Discount factor0.95010.85770.77430.69900.6310-
    Present valueUSD 1.3bnUSD 1.4bnUSD 1.4bnUSD 1.4bnUSD 1.5bn+3.0%
    Present Value Of The ForecastUSD 7.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.092Reported 1.137, pulled toward 1.0 (Blume)
    Cost of equity11.00%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 77.9bn96.8% of capital
    Total debtUSD 2.6bn3.2% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC10.77%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 89.47

    71% of EV

    Forecast FCFF, final year
    USD 2.3bn
    Capex at depreciation, working capital in reinvestment
    USD 2.5bn
    Less reinvestment at g/ROIC (12.3% of NOPAT)
    USD -303.9m
    Capitalised
    USD 2.2bn
    ROIC (reported)
    20.3%
    Terminal value, undiscounted
    USD 26.9bn
    Terminal value, discounted
    USD 16.9bn
    Enterprise value
    USD 23.9bn
    Less net debt
    USD -539.1m
    Equity value
    USD 24.5bn

    Exit at 20.0x EBITDA

    Value per shareUSD 190.88

    87% of EV

    Terminal value, undiscounted
    USD 70.8bn
    Terminal value, discounted
    USD 44.7bn
    Enterprise value
    USD 51.6bn
    Less net debt
    USD -539.1m
    Equity value
    USD 52.2bn

    Spread between methods: 72%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.77%108.76112.80117.46122.90129.34
    9.77%95.6198.39101.54105.12109.26
    10.77%85.3287.2989.4791.9394.69
    11.77%77.0478.4680.0281.7483.65
    12.77%70.2471.2872.4173.6374.98

    Outlined: this model. Green text: above today's price of 282.90. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year14.1%48.4%+34.2pp
    Discount rate10.8%5.1%-5.7pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.