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Cadence Design Systems, Inc. (CDNS) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Cadence Design Systems, Inc. (CDNS)

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Intrinsic Value (DCF)

Current$320.60
→
Intrinsic$105.38
-67%
$70.70$105.38$174.37
Current price reflects execution expectations above 15% growth — not unreasonable for quality businesses.
Range: Bear $71 → Bull $174. Current price implies expectations above the base case, closer to bull expectations.
Current price reflects assumptions at the upper end of our valuation range (bull case: $174).
Discount ↓Growth →11%13%15%17%
8%$131$142$154$168
10%$90$97$105$114
12%$68$74$79$86
14%$55$59$64$68

Bull Case

  • Bull case ($174) with 18% growth, 8% discount rate
  • Conservative 15% growth assumption is achievable based on track record

Bear Case

  • Bear case ($71) implies 78% downside at 12% growth, 12% discount
  • Trading 67% above base case — execution must exceed assumptions to justify
  • Price exceeds bull case ($174) — requires exceptional execution
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5-Year Free Cash Flow Projection

Year 1$1.28B
Year 2$1.47B
Year 3$1.69B
Year 4$1.94B
Year 5$2.22B
Terminal$35.19B

📐 Model Inputs

Growth Rate14.7%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate9.5%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$1.12BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is CDNS stock undervalued or overvalued?
🔴 OVERVALUED

CDNS trades at $320.60 vs. our DCF-derived intrinsic value of $105.38, implying -67% downside. Using a 9.5% WACC and 14.7% FCF growth assumption, the current price requires growth rates above our estimates to be justified. Even our bull case ($155.87) suggests limited upside.

What is CDNS's intrinsic value?

Using a 5-year DCF model: Base FCF of $1.12B, projected at 14.7% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 9.5% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $-59M net debt and dividing by 0.27B shares: Bear $70.86 | Base $105.38 | Bull $155.87. Current price $320.60 implies -67% to base case.

How is CDNS's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 14.7% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=9.5%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($28.80B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 25.8x.