It has been about a month since the last earnings report for Synopsys (SNPS - Free Report) . Shares have added about 8.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Synopsys due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Synopsys Reports Q4 Results
Synopsys's fourth-quarter fiscal 2019 non-GAAP earnings of $1.15 per share beat the Zacks Consensus Estimate by 1.77% and also the year-ago quarterly figure by 47.4%.
Further, revenues grew 7% year over year to $851.1 million and surpassed the Zacks Consensus Estimate of $846 million as well.
The company is benefiting from increasing global design activity and customer engagements. Rising impact of machine learning, AI, Automotive, 5G, IoT, Cloud and the proliferation of Smart Everything are boosting demand for its advance solutions.
However, challenging global market, geopolitical tension and unevenness in the semiconductor industry are key headwinds.
Quarter in Detail
Time-Based Products revenues (64% of the total generated) of $548.4 million were down 9.4% year over year. However, Upfront Products revenues (20%) soared 152.9% to $168.3 million. Maintenance and Service revenues (16%) too grew 9.3% to $134.4 million.
Segment wise, Semiconductor & System Design revenues (90% of total) were $765.8 million. Within the same, EDA revenues were $489.2 million and the metric from IP & Systems Integration was $275.5 million
Software Integrity revenues were 85.3 million, accounting for approximately 10% of the top line in the reported quarter.
Geographically, Synopsys’ revenues in North America (53% of total) were $450 million while Revenues in Europe (11%) were $91.5 million.
Asia Pacific revenues (26%) were $240.3 million whereas revenues in Japan (8%) were $69.2 million.
Per ASC 606, non-GAAP operating margin was 24.8%. While Semiconductor & System Design delivered an adjusted operating margin of 26.4%. Software Integrity’s margin came in at 11%.
Balance Sheet & Cash Flow
Synopsys exited the fiscal fourth quarter with cash and cash equivalents of $728.6 million compared with $686.8 million at the end of the previous reported quarter.
Operating cash flow for the year was $801 million.
The company completed buybacks of $329 million in the year and $1.8 billion over the past five years, returning approximately 75% of free cash flow to its investors over that period.
For first-quarter fiscal 2020, the company’s revenues are expected in the $805-$835 million band. Non-GAAP expenses are anticipated within $635-$655 million. Management assumes non-GAAP earnings per share of 89-94 cents.
For the full fiscal, revenues are now projected in the range of $3.60-$3.65 billion. Non-GAAP earnings per share for the period are forecast between $5.18 and $5.25.
Double-digit growth in non-GAAP earnings is likely to be driven by a revenue rise in high-single-digits, indicating growth in mid-to-high single digits for EDA, low-double-digits’ growth for IP and Software Integrity growth within the 15-20% range.
The company estimates to boost its operating margin in the high-20s by 2021 and in the long haul, within the 30% range.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -49.44% due to these changes.
Currently, Synopsys has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Synopsys has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.