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What's in Store for Synopsys (SNPS) This Earnings Season?

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Synopsys (SNPS - Free Report) is slated to release second-quarter fiscal 2021 results on May 19.

Management expects second-quarter revenues between $970 million and $1 billion. The Zacks Consensus Estimate for the top line is currently pegged at $988.5 million, indicating 14.8% year-on-year growth.

Management expects non-GAAP earnings between $1.50 and $1.55 per share. Notably, the consensus mark for earnings is pegged at $1.52 per share, suggesting 24.6% year-over-year growth.

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Synopsys’ fiscal second-quarter performance is likely to have benefited from growing demand for its solid product portfolio. Increasing global design activity and customer engagements are likely to have been its growth drivers.

Moreover, the rising impact of artificial intelligence ("AI), 5G, internet of things, high-performance computing and the Cloud, and automotive is anticipated to have boosted demand for the company’s advanced solutions. Synopsys’ performance is likely to have gained from growth in Custom Compiler, which is fueled by large deal wins in the 5G, AI and server chip markets.

Additionally, widespread contract wins and the increasing deployment of the Fusion Platform, including Fusion Compiler, are anticipated to have been key growth drivers. Synopsys’ Verification Continuum platform witnesses robust demand and competitive gains, which are anticipated to have been major catalysts as well.

Notably, the ongoing shift to high-performance cloud computing owing to the coronavirus-induced remote working environment is expected to have aided demand for the company’s Intellectual Property ("IP") solutions, such as PCI Express, 112G Ethernet and DDR.

Further, the company’s USB4 IP solution for advanced 5nm processes is likely to have driven order growth in the to-be-reported quarter. Also, strong adoption of its interface and foundation IP solutions is expected to have boosted revenues for the company’s interface portfolio.

The company’s solid electronic design automation software partner base, which includes Advanced Micro Devices, Juniper Networks, Realtek, Toshiba and Wolfson, is likely to have served as a major revenue driver.

Additionally, increased design investments in Synopsys’s ARC processors by automotive companies, despite the coronavirus-led headwinds in the automotive space, are positives.

However, partial resumption of normal activities is expected to have brought back certain expenditures, which were on hold during the lockdown and work-from-home period. This might have been a slight drag on margins.

Moreover, geopolitical challenges coupled with uncertainties related to restrictions over trade with Huawei Technologies are likely to have adversely impacted overall business in the second quarter.

What Our Model Says

Our proven model does not predict an earnings beat for Synopsys this time around. The combination of a positive Earnings ESP, and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Synopsys currently carries a Zacks Rank of 4 and has an Earnings ESP of 0.00%.

Stocks With Favorable Combinations

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat in their upcoming releases:

HP Inc. (HPQ - Free Report) has an Earnings ESP of +4.49% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation (NVDA - Free Report) has an Earnings ESP of +2.11% and carries a Zacks Rank #2, at present.

Pure Storage, Inc. (PSTG - Free Report) has an Earnings ESP of +10.81% and currently carries a Zacks Rank #2.

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