On Friday, Piper Sandler adjusted its outlook on Synopsys (NASDAQ: NASDAQ:SNPS), decreasing the price target to $655 from the previous $670 while maintaining an Overweight rating on the stock. According to InvestingPro data, the company maintains a "GREAT" financial health score, though 11 analysts have recently revised their earnings expectations downward.
The revision follows the company's fiscal year 2025 revenue guidance, which fell short of expectations, including those set by the firm after accounting for the impacts of the 53rd week and the divestiture of the Optical Solutions Group (OSG).
Synopsys' FY25 guidance midpoint is reported at $6.775 billion, which is below the analyst's projection of $6.830 billion. Notably, the guidance still appears to include OSG revenue, despite the divestiture. The company has expressed a conservative stance regarding its FY25 prospects, particularly with respect to China. While there is no explicit guidance for the China contribution next year, Synopsys anticipates growth headwinds and has excluded the possibility of accretive growth from its projections.
The analyst highlighted that if China's growth is weaker next year, Synopsys could still achieve low-teens growth, excluding the effects of the 53rd week and the China market. Nonetheless, this tempered growth outlook is expected to weigh on the stock in the near term, as evidenced by its 7.74% decline over the past week. This sentiment is somewhat mitigated by the anticipated continued improvement in EBIT margins, which are projected to reach 40% next year, building on the company's already impressive 81.44% gross profit margin.
Want deeper insights? InvestingPro subscribers have access to over 15 additional key metrics and ProTips for Synopsys, along with comprehensive financial analysis.
The report suggests that the lowered revenue guidance, particularly due to caution about China's performance, is a primary factor influencing the stock's short-term trajectory. Despite this, the firm's position remains positive, considering the potential for margin expansion and growth outside of the identified challenges.
Based on InvestingPro's Fair Value analysis, the stock is currently trading near its fair value, suggesting balanced risk-reward dynamics.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.