On Thursday, Rosenblatt adjusted its outlook on Synopsys (NASDAQ:SNPS), raising the price target to $635 from the previous $615, while maintaining a Buy rating on the stock. The firm's analyst cited the upcoming Q3/FY24 results, set to be announced on August 21st after market close, as a basis for the revision.
The analyst expects Synopsys to either meet or slightly surpass the Q3 forecasts based on stable results from competitors in the Electronic Design Automation (EDA) industry and market checks.
The analyst's revenue estimate for Synopsys in Q3 stands at approximately $1,521 million, a roughly 2% year-over-year increase when excluding the discontinued Software Integrity Group (SIG). This figure falls within Synopsys' own guidance range of $1,505 to $1,535 million. The firm anticipates continued support from semiconductor and systems technology development trends, increased adoption of Synopsys.ai, and growth in the hardware segment.
The sale of SIG to a private equity firm, announced on May 5th, is expected to be finalized in the second half of 2024, with Synopsys set to receive $1.5 billion at closing. Additionally, Synopsys' ongoing acquisition of Ansys (NASDAQ:ANSS), which is currently under review by the UK Competition and Markets Authority (CMA), is projected to be completed in the first half of 2025.
Rosenblatt's new price target reflects a valuation based on FY25-26 financials, taking into account slightly reduced comparable multiples. The firm's positive stance on Synopsys is influenced by the company's strategic moves, including the divestiture of SIG and the anticipated integration of Ansys.
In other recent news, Synopsys Inc . has been making significant strides in its operations and financial performance. The company announced its planned acquisition of Ansys Inc., a move that is expected to enhance Synopsys' capabilities in integrated circuit design and software security. This development follows the company's filing of a notification with China's market regulator, a step towards satisfying conditions for the merger.
Synopsys has also experienced a 15% year-over-year increase in revenue to $1.45 billion and a 26% surge in non-GAAP earnings per share in the second quarter of 2024. Analyst firms Piper Sandler, Baird, and KeyBanc have respectively raised their price targets for Synopsys, reflecting the company's robust financial performance.
In terms of product development, Synopsys unveiled the first complete PCIe 7.0 IP solution, a significant milestone in data transfer technology for AI and high-performance computing data centers. The company also announced the availability of its AI-driven multi-die reference flow and Synopsys IP for Intel (NASDAQ:INTC) Foundry's embedded multi-die interconnect bridge technology, aiming to expedite the design and production of heterogeneous multi-die systems.
InvestingPro Insights
With Synopsys (NASDAQ:SNPS) preparing to announce its Q3/FY24 results, insights from InvestingPro can provide a deeper understanding of the company's financial health and market position. Synopsys boasts impressive gross profit margins, with recent data showing a robust 80.39% for the last twelve months as of Q1 2023. This financial stability is further underscored by the company's revenue growth of 25.53% during the same period, indicating a strong upward trajectory in its financial performance.
InvestingPro Tips highlight that Synopsys is trading at a high earnings multiple, with a P/E ratio of 56.51, which suggests a premium valuation in the market. However, this is supported by the company's status as a prominent player in the Software industry, and analysts have revised their earnings upwards for the upcoming period, reflecting confidence in its future performance. For investors looking for further insights, there are 16 additional InvestingPro Tips available, offering a comprehensive analysis of Synopsys' financial metrics and market potential.
Despite recent volatility, with the stock having fared poorly over the last month, the long-term view shows a 21.54% price total return over the past year. This resilience, combined with the fact that Synopsys' cash flows can sufficiently cover interest payments and its liquid assets exceed short term obligations, positions the company favorably for navigating current market conditions. As Rosenblatt has raised their price target, these InvestingPro metrics and tips provide a valuable context for investors considering Synopsys' stock ahead of the Q3 earnings release.
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