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Synopsys (SNPS) Down 15.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Synopsys (SNPS - Free Report) . Shares have lost about 15.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Synopsys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Synopsys Q3 Earnings and Revenues Beat Estimates

Synopsys reported third-quarter fiscal 2022 non-GAAP earnings of $2.10 per share, beating the Zacks Consensus Estimate of $2.04. The bottom line improved 16% year over year.

Revenues surged 18.1% year over year to $1.25 billion, driven by growth across its business segments. The top line beat the Zacks Consensus Estimate of $1.22 billion.

Synopsys benefited from the increasing demand for its products amid the rapid adoption of Big Data, faster computation and Machine Learning. Complex, connected, specialized, and secure chips and systems witnessed strong momentum and drove Synopsys’ quarterly performance.

Quarter in Detail

In the license-type revenues group, Time-Based Product revenues (60.4% of total revenues) of $754.3 million were up 13.3% year over year. Upfront Product revenues (21.5%) surged 32% to $268.6 million. Maintenance and Service revenues (18%) increased 19.4% year over year to $224.9 million from the year-ago quarter’s $188.3 million.

Segment-wise, Semiconductor & System Design revenues (91% of total revenues) were $1.13 billion, up 17.8% year over year. Within the segment, Electronic Design Automation revenues (50% of revenues) were $623 million, while IP &Systems Integration revenues (41% of revenues) amounted to $495.9 million.

Software Integrity revenues totaled $118.3 million, contributing approximately 9% to the top line in the reported quarter.

Geographically, Synopsys’ revenues in North America (47% of the total) and Europe (10%) were $591.8 million and $127.3 million, respectively. Revenues from Korea (10%), China (15%) and Other (17%) were $125.3 million, $189.1 million and $214.2 million, respectively.

Non-GAAP operating margin was 31.4%, contracting 50 basis points (bps) year over year.

Semiconductor & System Design delivered an adjusted operating margin of 33.7%, shrinking 60 bps on a year-over-year basis. Software Integrity margin expanded 70 bps year over year to 9.5%.

Balance Sheet & Cash Flow

Synopsys had cash and short-term investments of $1.53 billion as of Jul 31, 2022, compared with $1.72 billion as of Apr 30, 2022.

Total long-term debt was $22 million in the reported quarter, down from $107 million as of Jul 31, 2021.

During the first nine months of fiscal 2022, operating cash flow was $1.35 billion.

Guidance

For the fourth quarter of fiscal 2022, Synopsys expects revenues between $1.263 billion and $1.293 billion. Management estimates non-GAAP earnings between $1.80 and $1.85 per share. Non-GAAP expenses are anticipated in the band of $919- million to $929 million.

For fiscal 2022, Synopsys raised guidance. The company now projects revenues to be $5.060-$5.090 billion compared with the prior range of $5.000-$5.050 billion.

Non-GAAP earnings for the fiscal year are now expected to be between $8.80 and $8.85 per share, compared with the earlier guidance of $8.63 and- $8.70 per share.

Non-GAAP expenses are estimated in the range of $3.395- billion to $3.405 billion compared with the previously guided range of $3.350 billion to- $3.380 billion. Synopsys now forecast an operating cash flow of $1.600-$1.650 billion, up from the prior estimate of $1.550-$1.600 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Synopsys has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Synopsys has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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