It has been about a month since the last earnings report for Synopsys (SNPS - Free Report) . Shares have lost about 11.1% 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 catalysts.
Synopsys Q4 Earnings & Revenues Match Estimates
Synopsys reported fourth-quarter fiscal 2018 non-GAAP earnings of 78 cents per share, in line with the Zacks Consensus Estimate but 13% higher than the year-ago quarter’s figure.
Although revenues jumped 14% year over year to $795, it matched the Zacks Consensus Estimate.
Strong growth across all product groups and geographies impacted the top-line results.
Management noted that the company’s buyouts of Cigital and Black Duck are establishing tactical quality relations with clients, leading to higher demand creation, cross-selling and a substantial rise in brand recognition.
Quarter in Detail
Segment wise, Time-Based Products revenues (76% of the total generated) came in at $605.6 million, up nearly 14.7% from the year-earlier period. Upfront revenues (8%) of $66 million fell 11% year over year. Maintenance and service revenues (15%) surged 31% year over year to $123 million.
Per product group, revenues from Core EDA (52% of total) inched up 2.3% to $412 million. Revenues from IP/Systems/SI (38%) increased 34.4% year over year to 303.9 million.
Manufacturing revenues (8%) also grew 13.6% year over year to $64.2 million. Revenues from the Services and Other segment (2%), however, rose 33% year over year to $14.9 million.
Geographically, Synopsys’s revenues in North America (49% of total) climbed 15.5% to $387.7 million. Revenues in Europe (12%) were up 29.4% to $96 million.
Asia Pacific revenues (30%) rose 7.6% to $238.9 million. Revenues in Japan (9%) ascended 12% to $72.5 million.
Total non-GAAP costs and expenses were $658 million, up 16.3% year over year.
Synopsys’ non-GAAP operating income of $136.8 increased 4.7% from the prior-year period. Operating margin contracted 150 basis points (bps) year over year to 17.2%.
Balance Sheet & Cash Flow
Synopsys exited the fiscal fourth quarter with cash and cash equivalents of $723.1 million compared with $741.2 million at the end of the previous quarter.
During the reported quarter, the company generated $131 million of cash from operational activities.
The company completed the accelerated share repurchase of $165 million, which began in May 2018, resulting in the total buybacks of $400 million during 2018.
The company bought back $1.2 billion of stock over the last three years, reducing the share count by 5 million in turn.
Fiscal 2018 Highlights
The company delivered fiscal 2018 revenues of $3.121 billion, having augmented 14.5% year over year. Non-GAAP earnings per share for fiscal 2018 summed $3.99 compared with $3.42 for fiscal 2017.
Synopsys is looking to grow total revenues in the high-single-digit range. The company expects growth in EDA revenues to be in the mid-to-high single digits, IP/Systems revenues generally in the low double-digits and Software Integrity revenues in the 20% range.
Moreover, the company envisions a gradual expansion of non-GAAP operating margins to the high 20s’ band with a target to reach 26% by 2021. The company aims to achieve this through a mix of revenue growth, prudent expense management and a continued scaling of Software Integrity.
The company intends to deliver a comprehensive Software Integrity Platform in 2019, designed to provide “a streamlined, more robust solution in what has been highly fragmented market, delivering high value for our customers.”
The company expects Software Integrity to attain nearly 10% of its total revenues in fiscal 2019.
Synopsys issued its fiscal 2019 outlook. The company estimates transition to ASC 606 induce a reduction of nearly $40 million in fiscal 2019 revenues. Revenues are projected to be in the range of $3.29-$3.34 billion, representing 5.5-7% year-over-year growth. Under ASC 606, revenues for fiscal 2019 are predicted between $3.34 billion and $3.37 billion.
Non-GAAP earnings per share are forecast between $4.20 and $4.27, indicating 7.5-9% growth on a year-over-year basis.
For the fiscal first quarter, the company’s revenues are likely to be in the $775-$810 million range. While non-GAAP costs and expenses are anticipated within $612-$622 million. Management assumes non-GAAP earnings per share of 95 cents to a penny.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, Synopsys has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Synopsys has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.