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Synopsys (SNPS) Q1 Earnings: What's in Store for the Stock?

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Synopsys, Inc. (SNPS - Free Report) is slated to release first-quarter fiscal 2019 results on Feb 20.

Notably, the company surpassed the Zacks Consensus Estimate in two of the trailing four reported quarters and matched it twice, the average beat being 3.32%.

In the last reported quarter, the company’s bottom and top-line figures met the Zacks Consensus Estimate. The results marked a year-over-year improvement.

For the fiscal first quarter, the company anticipates revenues in the $775-$810 million range.  Non-GAAP earnings per share are expected within 95 cents to a penny.

The Zacks Consensus Estimate for revenues and earnings per share is pegged at $796.7 million and 97 cents, respectively.

Let’s see, how things are shaping up prior to this announcement.

Factors at Play

Synopsys is gaining traction from a solid uptick across all product groups and geographies. Its sustained focus on introducing products, acquisitions and deal wins is likely to continue boosting results.

Robust trends in the core electronic design automation (EDA) market, driven by a consistent chip and system complexity, is a positive. The company’s digital design tools, aided by a strong performance across its Fusion design platform, are helping it generate solid revenue growth.

Demand for Synopsys’ hardware-based Zebu emulation system is also encouraging. Also, sturdy growth in both the IP and Software Integrity segments is setting the stage for further expansion. The company is looking into both organic investments and key buyouts to diversify its customer base, thus expanding its total addressable market.

Management noted that the company’s purchases 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.

However, U.S.-China trade tensions and slowing smartphone demand are a major threat to semiconductor market, which makes us grow anxious about Synopsys’s near-term results.

Further, increasing costs and expenses are an overhang on the company’s margins. Additionally, a rising competition from the likes of Cadence Design Systems Inc. (CDNS - Free Report) is another concern.

Synopsys, Inc. Price and EPS Surprise

Synopsys, Inc. Price and EPS Surprise | Synopsys, Inc. Quote

What Our Model Says

Our proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided. 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 #2, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% makes surprise prediction difficult.

Key Picks

Here are some stocks, which you may consider as our model shows that these have the right combination of elements to beat on earnings in the upcoming releases:

GTT Communications, Inc. (GTT - Free Report) has an Earnings ESP of +173.53% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ciena Corporation (CIEN - Free Report) has an Earnings ESP of +1.70% and a Zacks Rank #3.

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