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Baird reaffirms shares target with outperform rating on Synopsys, sees growth

EditorNatashya Angelica
Published 03/12/2024, 13:46
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On Tuesday, Baird reaffirmed its positive stance on shares of Synopsys (NASDAQ:SNPS), maintaining an Outperform rating and a price target of $644.00. Currently trading at $565.93, the stock has attracted strong analyst attention, with targets ranging from $490 to $694.

According to InvestingPro data, nine analysts have recently revised their earnings estimates upward for the upcoming period, suggesting growing confidence in the company's prospects. The firm anticipates that the company will mirror its historical pattern of providing conservative revenue guidance initially, only to surpass it by the year’s end.

For fiscal year 2025, Baird projects growth to start within the range of 12-13% and climb to approximately 15% year-over-year on an underlying basis, positioning their estimates above the consensus.

The analyst at Baird pointed out that the reported numbers for Wednesday are expected to be over 100 basis points lesser than the underlying results due to eight fewer selling days in FY25 compared to FY24. The company's impressive gross profit margin of 80.5% and strong financial health score of GOOD from InvestingPro suggest robust operational efficiency despite these temporary calendar effects.

Initial guidance is likely to lean towards an 11-12% year-over-year increase on a reported basis, which is below the consensus estimate of 12.7% year-over-year growth. The first quarter is also anticipated to fall short of consensus by more than 3% because of the disparity in selling days.

Despite the likelihood of negative headlines from the initial conservative guidance, the analyst believes that the investment community has already factored in these potential shortfalls. The projection of starting growth at 11-12% year-over-year is seen as a "low bar" that Synopsys is well-positioned to exceed during FY25. This approach has recently attracted subsequent investor interest according to Baird.

The commentary from Baird suggests that concerns surrounding chip development activity, AI advancements, and market conditions in China, as well as the situations with Intel (NASDAQ:INTC) and Samsung (KS:005930), have already been priced into the stock. Therefore, the firm considers any outcomes that are not worse than feared could warrant a positive reaction from the market.

In summary, Baird's outlook for Synopsys remains upbeat, with the expectation that the company will likely outperform its initial revenue guidance for the fiscal year 2025, despite the anticipated conservative forecast and potential initial negative market reactions.

With a revenue growth of 26.26% in the last twelve months and strong market position, the company shows promising fundamentals. Discover more detailed insights and 15+ additional ProTips about Synopsys through InvestingPro's comprehensive research reports, designed to help investors make informed decisions.

In other recent news, Synopsys has displayed solid financial performance with a 13% increase in revenue and a 27% growth in non-GAAP earnings per share in Q3 2024, surpassing its targets. The company's full-year guidance for 2024 anticipates revenue between $6.105 billion and $6.135 billion, and non-GAAP EPS ranging from $13.07 to $13.12.

Synopsys also finalized the sale of its Software (ETR:SOWGn) Integrity business to entities controlled by investment groups Clearlake Capital Group and Francisco Partners, and announced a collaboration with Taiwan Semiconductor Manufacturing Company to deliver advanced Electronic Design Automation and Intellectual Property solutions.

Several analyst firms have initiated or maintained coverage on Synopsys. Loop Capital initiated coverage with a Buy rating and a $675 price target, citing the company's potential to capitalize on the increasing trend of captive chip designs and the rapid growth of China's chip design activity.

Needham maintained its Buy rating, adjusting its FY25 forecast with stronger growth expected in the second half. Mizuho (NYSE:MFG) initiated coverage with an Outperform rating and a $650 price target, citing the company's potential growth.

Berenberg initiated coverage with a Buy rating and a $660 price target, highlighting Synopsys's differentiated product offerings in high-growth markets. Lastly, KeyBanc maintained its Overweight rating with a steady price target of $690, expressing confidence in the company's growth opportunities. These are the recent developments for Synopsys.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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