Cadence Analyst Sees Meaningful Upside In Stock As EDA Customers Increase R&D Spend

Needham analyst Charles Shi maintained Cadence Design Systems Inc CDNS with a Buy and raised the price target from $200 to $235.
Cadence beat the Street's 4Q22 estimate, and management guided 2023 revenue to be up 12-14%, well above the consensus estimate of ~10%.
System Analysis continued to post robust growth, up 37.6% Y/Y in 4Q, marking its fourth quarter of Y/Y growth acceleration.
Verification also posted solid growth of 28%, mainly driven by hardware, in which the Company noted demand continues to outpace production capacity.
Custom and Digital also expanded nicely, both growing double digits in the quarter with continued new customer adoptions.
The analyst noted that overall demand trends remain strong, particularly within hardware, as customers increasingly view it as non-discretionary spending and expect the upfront revenue mix to be consistent with 2022's ~15%.
Management guided hardware revenue to be front-half loaded, implying a flat revenue profile for the overall business through 2023.
The analyst became more confident in Cadence's multiple LT secular growth drivers, margin expansion opportunities, and growth prospects in simulation.
There's a meaningful upside to Cadence's 12-14% outlook should the industry's cyclical recovery arrive in 2H23 and drive H/H growth for its hardware business, the analyst said.
Shi believes Cadence can sustain double-digit growth in 2024 as the industry exits the downturn and EDA customers raise R&D spending.
Price Action: CDNS shares traded higher by 5.45% at $195.82 on the last check Tuesday.

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