Synopsys SNPS shares have faced a setback, currently trading 19.7% below its 52-week high set at $629.38. This dip underscores the company’s recent struggles amidst a challenging market environment.
Over the last quarter, Synopsys shares witnessed a 16.9% decline, trailing behind the broader Zacks Computer & Technology Sector’s 1.1% drop and the Zacks Computer – Software industry’s decrease of 2.7%.
One of the prominent challenges for Synopsys is the escalation in its cost of revenues and operating expenses. In the third quarter of fiscal 2024, these costs surged to $1.17 billion, up from $1.01 billion a year ago, sparking concerns about the company’s cost management abilities.
The company’s presence in the fiercely competitive semiconductor and electronic design automation (EDA) space has compounded its woes, further exacerbated by lingering integration issues from recent acquisitions.
Synopsys, Inc. Price and Consensus
Synopsys, Inc. price-consensus-chart | Synopsys, Inc. Quote
Is the current dip in SNPS shares an opportunity for potential investors? Let’s delve deeper.
Synopsys Prospects: Riding on Innovation
Synopsys relies on its robust product portfolio to drive growth. The demand for increased bandwidth in the era of hybrid working is a positive indicator for the company’s solutions. Moreover, the surge in AI, 5G, and IoT applications presents favorable growth prospects for SNPS.
In the third quarter of fiscal 2024, Synopsys reported impressive revenues, up 13% year-over-year to $1.53 billion, aligning with the Zacks Consensus Estimate.
For the fiscal year 2024, Synopsys anticipates around 15% revenue growth, with revenue projections ranging between $6.105 billion and $6.135 billion.
The Zacks Consensus Estimate for revenues stands at $6.13 billion, reflecting a notable year-over-year growth of 4.93%.
Looking ahead to fiscal 2024, non-GAAP earnings are expected to fall within the range of $13.07-$13.12 per share. The consensus outlook for earnings sits at $13.12 per share, unchanged over the past month.
For the fourth quarter of 2024, revenue forecasts range from $1.614 billion to $1.644 billion, with the Zacks Consensus Estimate standing at 3.28 per share, ticking up by a penny in the past 30 days.
Anticipated non-GAAP earnings for the same period are expected to range from $3.27 per share to $3.32 per share. The Zacks Consensus Estimate for fourth-quarter fiscal 2024 revenues is pegged at $1.62 billion, indicating a modest year-over-year growth of 1.01%.
Impact of Acquisitions on SNPS Future
Synopsys has been strategically acquiring companies to widen its product range and stimulate growth. In the last five years alone, the company has completed over 15 acquisitions, including Intrinsic ID and Valtrix in 2024.
The ongoing acquisition of ANSYS ANSS is part of Synopsys’ Silicon to Systems strategy, with a specific focus on industries like automotive, aerospace, and industrial. This move is anticipated to bolster Synopsys’ market presence and enhance its product offerings.
Growth Concerns and Competitive Landscape
In the Design Automation segment, Synopsys witnessed a deceleration in growth in the third quarter of fiscal 2024. Revenues from this segment escalated by a modest 6% year over year to $1.06 billion. In contrast, the same segment recorded a robust 23% growth in the third quarter of fiscal 2023, hitting $1.0 billion.
Tough competition in the EDA market, battling it out with established players such as Cadence Design Systems CDNS and Mentor Graphics, has attributed to this slowdown.
Furthermore, unfavorable forex conditions and a challenging macroeconomic backdrop pose significant hurdles for investors eyeing Synopsys.
Evaluation and Outlook
Currently holding a Zacks Rank #3 (Hold), Synopsys advises potential investors to seek a more opportune entry point. A Value Score of D hints at a stretched valuation level at present.
With a forward Price/Earnings ratio of 34.82X, Synopsys trades at a premium compared to the broader sector’s 32.33X.
Exploring Alternatives
Progress Software PRGS emerges as a compelling alternative in the sector, boasting a Zacks Rank #1 (Strong Buy). The company displays a long-term earnings growth rate of 2% and has seen a 23.2% increase in its shares year to date.