On Thursday, KeyBanc updated its outlook on Synopsys (NASDAQ:SNPS), raising the price target to $690 from $675 while maintaining an Overweight rating on the stock. The firm's analyst cited the growing opportunity in 3D integrated circuits (3D-IC) within the electronic design automation (EDA) sector as a significant factor for the increased target. The emphasis on multi-die designs was a standout observation from the recent Design Automation Conference (DAC), with a notable focus on chiplet-based designs for future chip-makers.
The analyst noted that Intel (NASDAQ:INTC) Foundry's substantial investment in 2.5D/3D designs suggests that other large foundries are likely to follow suit. This trend is expected to drive demand for multi-physics solvers, such as thermal and electromagnetics, necessary for 3D-IC, which was a major topic among keynotes and presentations attended by the analyst at the DAC. Competitors like ANSYS and Altair were also present, indicating a broader industry movement towards advanced simulation tools.
The revised price target of $690 is based on a forward-looking P/E ratio of 45.5 times the firm's FY25 earnings estimate, plus a pro forma net cash position of approximately $20 per share. This valuation also takes into account a 59.5 times FY25E enterprise value/free cash flow multiple. In comparison, Synopsys was trading at 39 times the FY25 earnings per share estimate plus pro forma net cash, which is below the 44 times earnings at which competitor Cadence Design Systems (NASDAQ:CDNS) trades, and above the industrial software average P/E of 34 times.
Synopsys' stock closed at $598.52 on June 26, 2024, prior to the analyst's update. The new target suggests a bullish outlook for the company, as it continues to capitalize on the significant technological shifts in the semiconductor industry, particularly in the adoption of advanced chip designs.
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