Near‑term EPS impact – Cadence will fund the Hexagon D&E purchase primarily with a mix of cash on hand and modest debt, and the deal includes an earn‑out tied to post‑closing performance. In the next 12‑month window the additional revenue from MSC Software (≈ $300‑$350 million of FY‑23 sales) will be largely offset by acquisition‑related costs—integration expenses, amortization of intangible assets and the earn‑out payment. Management’s guidance suggests a ~5‑7 % dip in diluted EPS for the coming quarter, after which the incremental contribution of the engineering‑simulation franchise should lift EPS growth to the mid‑single‑digit range. Traders should therefore expect a short‑term earnings‑compression signal, but a clear path to upside once the combined product roadmap drives higher license and subscription uptake.
Valuation metrics – The acquisition adds a high‑margin, recurring‑revenue stream that is prized in the semiconductor‑EDA space, so analysts are likely to re‑price Cadence at a higher forward P/E (≈ 30‑32× FY‑25E earnings versus the current ≈ 28×) and a modest uplift in EV/EBITDA (from ~ 20× to ~ 22×). However, the near‑term dilution and integration risk will keep the price‑to‑sales multiple anchored around its current level (~ 22×) until the first quarter of 2025 when the combined revenue run‑rate surpasses $2 billion. In practice, the stock may trade on a “valuation premium” of 3‑5 % over peers (e.g., Synopsys, Ansys) as the market prices the strategic fit, but expect volatility around the earnings release as investors reconcile the temporary EPS dip with the longer‑term growth thesis.
Trading implication – Short‑term: consider a modest sell‑on‑news or defensive put spread ahead of the upcoming earnings call to capture the expected EPS dip. Medium‑term (3‑6 months): position for a breakout long once Cadence reports the first quarter with MSC‑derived revenue, as the higher‑growth trajectory should compress the forward P/E back toward historic highs and support a rally. Keep an eye on integration milestones (e.g., cross‑sell of MSC simulation tools into Cadence’s System Design suite) and any guidance revisions that could accelerate the valuation uplift.