Cadence Analysts See It Scoring Driven By Autos, Autonomous Driving, 5G, AI/ML Despite China Restrictions

  • Needham analyst Charles Shi maintained a Buy on Cadence Design Systems, Inc CDNS with a $200 price target.
  • Cadence reported a stronger-than-expected 3Q22, partly due to strength in emulation and prototyping hardware sales, and guided 4Q22 above his estimate despite a sequential slowdown into the year-end
  • Consistent with his view, the company sees a limited impact from China export restrictions in FY22 and beyond. 
  • Cadence also received its largest-ever IP contract from a U.S. marquee semiconductor company, which may set the stage for sustainable IP growth into FY23 despite a potential China IP slowdown. 
  • Meanwhile, management is cautious about the near-term outlook for upfront sales (primarily hardware) in the next 3-6 months due to strength in FY22 YTD. 
  • Tying it all together, he cut his 1H23 estimates to account for moderate hardware sales, but believed CDNS may grow by over 10% Y/Y in 2023. 
  • KeyBanc's Jason Celino reiterated an Overweight and $215 price target.
  • Cadence reported a $32 million revenue beat on broad-based strength. The company also raised its 2022 revenue guidance by $46 million (net increase of $14 million) versus the prior consensus.
  • More importantly, Cadence noted the impact of recent chip restrictions will be "limited and manageable." 
  • With secular drivers from increasing silicon content in autos, autonomous driving, 5G, AI/ML designs, and growing chip design complexity, he continued to like the favorable trends in EDA and view the recent pull-back as a buying opportunity. 
  • Price Action: CDNS shares traded lower by 3.79% at $154.14 on the last check Tuesday.
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