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Investing.com - Rosenblatt downgraded Synopsys (NASDAQ:SNPS) from Buy to Neutral and lowered its price target to $605.00 from $650.00 on Wednesday, citing weaker-than-expected performance in the company’s IP business. According to InvestingPro data, the stock currently trades at a high P/E ratio of 68.9x, suggesting premium valuation levels despite maintaining impressive gross profit margins of 81.13%.
Synopsys reported third-quarter results below expectations, with total revenues of $1.74 billion, approximately 4% below Rosenblatt’s forecast. This figure included $78 million from recently acquired Ansys, representing about 4% of the total, with organic growth of approximately 9%. The company’s last twelve months revenue stands at $6.44 billion, with InvestingPro analysis indicating the company is trading above its Fair Value.
The company attributed its underperformance to several factors, including ongoing export restrictions in China affecting customer commitments, delays at a major foundry for which Synopsys has built significant IP, and IP product decisions that did not yield expected results.
Synopsys announced plans for a 10% workforce reduction over the next year across all departments, including Ansys, to improve margins. The company also intends to conduct a strategic product portfolio review as it pivots its IP product roadmap toward higher-growth opportunities.
The IP segment generated approximately 25% of Synopsys’ revenue in the quarter, down from 31% in fiscal year 2024, with Rosenblatt expressing concern that this misstep could potentially open the door to competitors. Despite these challenges, InvestingPro rates Synopsys’s overall financial health as "GOOD," with 14+ additional ProTips available to subscribers through the comprehensive Pro Research Report, offering deeper insights into the company’s competitive position and growth prospects.
In other recent news, Synopsys reported its third-quarter financial results, which fell short of analyst expectations. The company posted revenue of $1.74 billion, missing the consensus estimate of $1.77 billion, and earnings per share of $3.39, below the anticipated $3.80. Following these results, Stifel reduced its price target for Synopsys to $550, maintaining a Buy rating, while Wolfe Research also lowered its price target to $540, retaining an Outperform rating. Meanwhile, Mizuho maintained its Outperform rating with a $700 price target, citing strong performance in Synopsys’ design automation segment, which saw a 23% year-over-year growth. Baird, however, downgraded Synopsys to Neutral due to concerns about the company’s Design IP outlook, including challenges from China restrictions and customer behavior. Despite these mixed results, the acquisition of Ansys contributed $77 million to Synopsys’ Electronic Design Automation revenue. These developments reflect the varied analyst reactions to Synopsys’ recent performance and future prospects.
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