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On Monday, Stifel reaffirmed its Buy rating on shares of Synopsys (NASDAQ:SNPS), maintaining a $620.00 price target. The firm anticipates Synopsys to release its third-quarter 2024 earnings on August 21, after the market closes.
The analyst expects the results for the July quarter to align with consensus estimates, attributing this to the sustained momentum in Electronic Design Automation (EDA) and the growth of emerging Intellectual Property (IP) applications. The projections include a year-over-year increase of 2.2% and a sequential growth of 4.5% for the quarter.
Stifel predicts that Synopsys management will issue guidance for the October quarter and the fiscal year that meets consensus estimates. This outlook is based on the strong performance in EDA expected to continue into the fourth quarter, bolstered by the rising adoption of Artificial Intelligence (AI). The firm models a year-over-year growth of 2.2% and a quarter-over-quarter increase of 7.5% for the October quarter.
The analyst emphasized that the long-term investment thesis and outlook for Synopsys remain unchanged. The EDA industry is increasingly influenced by AI-driven trends, and the emergence of new applications is propelling significant growth within the sector.
Synopsys, being a leader in an industry characterized by limited competition and high entry barriers, is well-positioned to benefit disproportionately from the global expenditure on AI infrastructure and EDA tools. This underpins the reiterated Buy rating.
In other recent news, Synopsys has seen a series of upgrades from analyst firms. Rosenblatt raised the company's price target to $635 from $615, citing the upcoming Q3/FY24 results. The firm's revenue estimate for Synopsys in Q3 stands at approximately $1.52 billion, a roughly 2% year-over-year increase.
Piper Sandler adjusted its price target for Synopsys to $687, reaffirming an Overweight rating, while Baird raised the company's price target to $661, maintaining an Outperform rating. KeyBanc also increased the price target to $690, highlighting the growing opportunity in 3D integrated circuits within the electronic design automation sector.
Synopsys continues to make strategic moves with the planned acquisition of Ansys (NASDAQ:ANSS) Inc., currently under review by the UK Competition and Markets Authority, projected to be completed in the first half of 2025. The company also recently finalized the sale of the Software Integrity Group to a private equity firm, expected to close in the second half of 2024.
The company's recent financial performance shows 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.
In terms of product development, Synopsys unveiled the first complete PCIe 7.0 IP solution and 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. These are some of the recent developments shaping Synopsys' trajectory in the semiconductor industry.
InvestingPro Insights
As Synopsys (NASDAQ:SNPS) approaches its third-quarter earnings release, recent data from InvestingPro shows that the company is trading at a high earnings multiple, with a P/E ratio of 58.7 and an adjusted P/E ratio of 59.57 for the last twelve months as of Q2 2024.
This valuation reflects an optimistic market sentiment, underscored by the company's substantial gross profit margin of 80.39% over the same period. The robust profitability is further highlighted by a gross profit of $5.07 billion, indicating that Synopsys has maintained impressive efficiency in its operations.
InvestingPro Tips suggest that Synopsys is a prominent player in the Software industry, which aligns with Stifel's view of the company's strong positioning within the EDA sector. Moreover, the company's liquid assets exceed short-term obligations, and cash flows can sufficiently cover interest payments, suggesting a solid financial foundation.
For investors considering the long-term potential of Synopsys, it's notable that the company has been profitable over the last twelve months and that analysts predict it will remain profitable this year. Moreover, there are 12 additional InvestingPro Tips available that provide deeper insights into Synopsys's financial health and market position.
The market cap of Synopsys stands at $84.12 billion, reflecting its significant presence in the market. While the company does not pay a dividend, indicating a focus on reinvesting earnings into growth and expansion, its long-term return metrics are strong, with a high return over the last decade. As investors digest Stifel's optimistic outlook, these InvestingPro metrics and tips offer a comprehensive view of the company's financial stature and market valuation as of Q2 2024.
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