- 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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