The company has released numerous solutions over the past year to help engineers deal with increasingly complex designs.
However, 2008 looks to be a challenging year for CDNS, which is now expecting declining revenue. CDNS shares are currently trading at 14.2x our 2008 earnings estimate of $0.77 per share and 2x our 2008 sales estimate of $5.44 per share.
This P/E multiple is a discount to its industry mean and median. Given CDNS' dramatically lowered outlook for 2008, we believe that the stock should trade at a discount to its peer group.
On February 20, 2008, Cadence announced that its Board of Directors has approved a stock repurchase program to buy back an aggregate of up to $500 million of its common stock, effective immediately. This approval is in addition to approximately $8.36 million remaining under the company's previous stock repurchase authorization.
More challenging economic conditions are likely to affect the semiconductor industry and flow through to the EDA market as well, although at this point Cadence appears to be the hardest hit. CDNS' closest competitor is Synopsis, which is currently trading at 16.5x 2008 estimates, but with a much higher growth rate.
As such, we maintain a Hold rating on Cadence shares and adjust our price target to $11.50, which represents a P/E multiple of 14.9x our 2008 EPS estimate of $0.77. We believe this multiple is quite reasonable.
Target $1 on Hold-Rated Genta
Genta, Incorporated (GNTA) is a biopharmaceutical company focused on developing and commercializing drugs for the treatment of cancer. The company's leading candidate, Genasense, got a 'non-approvable' notice from the FDA on December 15, 2006; the company filed an appeal with the FDA in April 2007 and got a positive response from the FDA in March 2008.
Additionally, positive results from the AGENDA trial will support the worldwide filing of Genasense as a treatment for melanoma. However, results from the phase III trial are not expected before end-2008.
We maintain a Hold rating on Genta shares. We believe that Genasense's chances of U.S. approval remain slim. In July 2007, the EMEA indicated that approval of Genasense in melanoma will require another clinical study. Genta believes that the AGENDA trial will be able to address the EMEA's requirement adequately. Positive data from this trial will enable the company for the worldwide filing of Genasense as a treatment for melanoma. However, we do not expect to see data from the trial before the end of 2008.
The company had cash and marketable securities of only $7.8 million at December 31, 2007. The company raised $3.1 million through the issuance of six million shares to institutional investors in February 2008. The sales of Genasense and Ganite outside the U.S. on a named patient/compassionate basis should provide the company with much-needed resources and help reduce its cash burn.
However, we do not see the company attaining profitability in the near future. We believe that Genta shares are fairly valued at the current level. Our target price is $1 which corresponds to a market cap of $36.2 million.
