Goldman Sachs reiterates Buy rating on Synopsys stock with $700 target

Investing.com - Goldman Sachs has reiterated its Buy rating on Synopsys (NASDAQ:SNPS), a $110 billion market cap software giant, with a price target of $700.00, according to a research note published Friday. The company, which boasts impressive gross margins of 81%, is currently trading near its InvestingPro Fair Value.

The firm expects Synopsys to deliver in-line underlying results but warns of potential volatility related to the Ansys (NASDAQ:ANSS) integration. Goldman Sachs notes that investor positioning appears "skewed slightly positive" despite previous concerns about China EDA export controls. InvestingPro data shows strong financial health metrics, with liquid assets significantly exceeding short-term obligations and a healthy current ratio of 7.02.

Goldman Sachs anticipates possible confusion surrounding the dynamics of the Ansys merger, citing non-comparable reporting, misaligned quarters, and the fact that many analysts have not updated their estimates for the deal, which closed on July 17.

Looking beyond what could be a volatile quarter, the firm expects Synopsys to outperform due to accelerated cost synergies and the alignment of semiconductor and physical simulation technologies.

Key focus areas for investors include the ongoing strength of core EDA software demand, the timeline for cost and revenue synergies from the Ansys acquisition, and the impact of the temporary China EDA ban along with the future demand outlook for that region. The stock currently trades at a P/E ratio of 68.4, reflecting market expectations for continued growth and synergy realization.

In other recent news, Synopsys has completed its acquisition of Ansys, forming a combined entity with a $10 billion run-rate and a strong position in engineering solutions from silicon to systems. The merger expands Synopsys’ market reach to a $31 billion total addressable market. China’s State Administration for Market Regulation has conditionally approved the acquisition, stipulating that Synopsys must honor existing customer contracts and renewals with Chinese customers. Following the deal’s approval, Needham raised its price target for Synopsys to $660, maintaining a Buy rating. Piper Sandler also increased its price target to $660, keeping an Overweight rating, citing the enhanced leadership in silicon design and systems engineering. Additionally, The Trade Desk (NASDAQ:TTD) will join the S&P 500 index, replacing Ansys due to its acquisition by Synopsys. This inclusion is expected to drive buying activity as index funds adjust their holdings. These developments highlight significant changes and expectations for Synopsys in the engineering and semiconductor software industry.

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