Cadence: Needham Upgrades; Is The Worst Behind It?

Cadence Design Systems (CDNS) are trading sharply higher today after Needham analyst Richard Valera lifted his rating on the EDA software provider to Buy from Hold.

Cadence has been having a rough year: the company had to restate earnings due to a revenue recognition issue, it announced a 12% staff reduction and it booted most of its management team, including CEO Michael Fister. (The search for a new CEO continues.)

But Valera says that “a strong case can be made” that the company should see solid growth in 2010 and 2011, even in a flat spending environment for the chip industry. He notes that the stock is just barely above its all-time low, even after a bump up yesterday on news that CFO Kevin Palatnik had purchased 100,000 shares while acting co-CEO Lip-Bu Tan had purchased 40,000 shares.

He says that guidance for this year and 2009 have been cut to rock-bottom levels, “and should be achievable even in very challenging market conditions.” He says that the company’s franchise as the leader in analog chip design tools remains intact.

Valera maintains his estimates for losses of 7 cents a share this year and 24 cents next year; for 2010 he expects a profit of 6 cents a share. Valera notes that the stock trades at a multiple of about 0.65x enterprise value to estimated 2009 sales, compared to a 10-year average multiple of 3x. His price target on the stock is $5.

CDNS today is up 28 cents, or 8.8%, to $3.38.