The firm also raised its price target to $32 from $24 on shares of the Wilsonville, OR-based supplier of electronic design automation (EDA) tools.
"The core EDA market remains robust, MENT is benefitting from multi-year growth drivers (emulation and automotive), and the operating model generates solid cash flow, but the stock still trades at a significant discount to its peers," DA Davidson wrote in an analyst note.
"We believe the addition of a new activist investor (Elliott Management: new 8% stake in MENT) will use its software experience (prior investments include Qlik, Informatica, Riverbed) to help unlock value," the firm added.
DA Davidson believes the current valuation gap will narrow with potential levers including optimizing operations and moving to a ratable model.
Separately, Mentor Graphics agreed to acquire Galaxy Semiconductor today. The company is a provider of test data analysis and defect reduction software for the semiconductor industry.
Terms of the deal were not disclosed.
Separately, TheStreet Ratings Team has a "Hold" rating with a score of C+ on the stock.
The primary factors that have impacted the rating are mixed. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations.
But the team also finds weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: MENT