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Synopsys Q3 Preview: Can The Earnings Streak Continue?

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It goes without saying that the Zacks Computer and Technology Sector has been hit hard in 2022, down nearly 20%. However, over the last month, the sector has gained a remarkable 13%, easily outperforming the S&P 500.

Below is a table illustrating the sector’s performance vs. the S&P 500 across several timeframes.

Zacks Investment Research
Image Source: Zacks Investment Research

A big-time player in the sector, Synopsys (SNPS - Free Report) , is on deck to reveal Q3 earnings on Wednesday, August 17th, after market close.

Synopsys is a vendor of electronic design automation (EDA) software to the semiconductor and electronics industries, offering a full suite of products used in the logic, synthesis, and functional verification phases of chip design.

The company currently carries a Zacks Rank #3 (Hold) with an overall VGM Score of a B. How does the company stack up heading into the print? Let’s take a closer look.

Share Performance & Valuation

Synopsys shares got off to a rough start in 2022 but have increased by 4.2% overall, easily beating the general market’s performance.

Zacks Investment Research
Image Source: Zacks Investment Research

Over the last three months, the share performance has been even more stellar, with SNPS shares tacking on a remarkable 35% in value and easily crushing the S&P 500’s 5.6% gain.

Zacks Investment Research
Image Source: Zacks Investment Research

The company’s 62.1X forward earnings multiple is undoubtedly on the extreme side, well above its five-year median of 51.6X and representing a steep 145% premium relative to its Zacks Sector.

In addition, SNPS carries a Style Score of a D for Value.

Zacks Investment Research
Image Source: Zacks Investment Research

Quarterly Estimates

Analysts have been silent for the quarter to be reported, with zero estimate revisions hitting the tape over the last 60 days. Still, the Zacks Consensus EPS Estimate of $2.04 reflects a strong 12.7% year-over-year uptick in quarterly earnings.

Zacks Investment Research
Image Source: Zacks Investment Research

The company’s top-line is projected to register significant growth as well – the Zacks Consensus Sales Estimate for the quarter resides at $1.2 billion, good enough for a 15% uptick compared to year-ago quarterly sales of $1.1 billion.

Quarterly Performance & Market Reactions

Synopsys’ bottom-line results have been stellar; the company has exceeded the Zacks Consensus EPS Estimate in 14 consecutive quarters. Just in its latest print, SNPS recorded a 5.5% bottom-line beat.

In addition, the company has been on an incredible top-line streak, exceeding the Zacks Consensus Sales Estimate in a jaw-dropping 25 consecutive quarters. Below is a chart illustrating the company’s revenue on a quarterly basis.

Zacks Investment Research
Image Source: Zacks Investment Research

It’s worth noting that the market has reacted well in response to the company’s quarterly prints as of late, with shares moving upwards four times following its last five earnings releases.

Putting Everything Together

Synopsys shares have provided market-beating returns over several timeframes, undoubtedly a positive amidst the red we’ve seen elsewhere.

Shares trade at very high multiples, well above their five-year median and Zacks Sector average.

In addition, quarterly estimates reflect growth within the top and bottom-lines, and the market has reacted well in response to the company’s quarterly prints as of late.

Furthermore, the company has repeatedly reported quarterly results above estimates.

Heading into the print, Synopsys (SNPS - Free Report) carries a Zacks Rank #3 (Hold) with an overall VGM Score of a B.


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