Synopsys Inc. Growth Expectations Ahead of the Quarterly Result
Key arguments in support of the idea.
▪ Expectation of a robust quarterly report.
▪ Attractive entry price and favorable valuation levels based on key multiples.
Investment Thesis
Synopsys, Inc. (SNPS) is the largest computer-aided design (CAD) company in the electronics design industry. Its flagship product, Design Compiler, is a widely recognized logic circuit synthesis tool. The Company offers a comprehensive range of additional products for the design of specialized integrated circuits, including solutions for logic synthesis, behavioral synthesis, element tracing, static timing analysis, formal verification, hardware description language (HDL) simulation (SystemC, SystemVerilog/Verilog, VHDL), and circuit simulation. Synopsys primarily serves customers in the semiconductor and electronics industries. The Company operates through two key segments: Design Automation, which accounts for approximately 69% of total revenue through the first nine months of fiscal year 2024, and Design Intellectual Property (IP), contributing 31%. Founded in 1986, Synopsys is headquartered in Sunnyvale, California.
Expectation of a robust quarterly report. We anticipate that the Company will report results for the current quarter that surpass consensus expectations. Demand for electronic design automation (EDA) solutions remains consistently strong, bolstered by Synopsys’ successful performance in the July quarter and a positive investor outlook for the ongoing period. The Company has reaffirmed its revenue growth guidance of 15% for FY2024 and expects improvements in operating margins. The strategic importance of EDA investments in executing customers' technology plans makes this sector relatively resilient to cuts in capital expenditures. Additionally, the adoption of new AI-based tools, such as ASO.AI and VSO.AI, is gaining momentum and contributing positively to Synopsys’ growth. Furthermore, The Company announced the acquisition of Ansys earlier this year, with the deal expected to close in the first half of 2025. This strategic move will enable Synopsys to provide a comprehensive solution for systematic chip design and integrated chip analysis, expanding its product line and enhancing its competitive position. Consequently, we foresee additional near-term upside for SNPS stock.
Attractive entry price and favorable valuation levels based on key multiples. The stock is currently trading at a discount relative to key multiples when compared to one of its main competitors and the industry average. For instance, Synopsys has an EV/EBITDA ratio of 29.5x for the next 12 months, which is favorable compared to Cadence Design Systems (CDNS) at 34.5x and the peer average of 31.3x. Additionally, the Company’s next 12-month P/E ratio stands at 38.4x, significantly lower than Cadence’s 44.7x and the industry average of 46.7x. This pricing presents an attractive entry point for investors and indicates strong upside potential for the stock.
The target price for the shares is $605, the rating is Buy. We recommend setting a stop loss at $425.
▪ Expectation of a robust quarterly report.
▪ Attractive entry price and favorable valuation levels based on key multiples.
Investment Thesis
Synopsys, Inc. (SNPS) is the largest computer-aided design (CAD) company in the electronics design industry. Its flagship product, Design Compiler, is a widely recognized logic circuit synthesis tool. The Company offers a comprehensive range of additional products for the design of specialized integrated circuits, including solutions for logic synthesis, behavioral synthesis, element tracing, static timing analysis, formal verification, hardware description language (HDL) simulation (SystemC, SystemVerilog/Verilog, VHDL), and circuit simulation. Synopsys primarily serves customers in the semiconductor and electronics industries. The Company operates through two key segments: Design Automation, which accounts for approximately 69% of total revenue through the first nine months of fiscal year 2024, and Design Intellectual Property (IP), contributing 31%. Founded in 1986, Synopsys is headquartered in Sunnyvale, California.
Expectation of a robust quarterly report. We anticipate that the Company will report results for the current quarter that surpass consensus expectations. Demand for electronic design automation (EDA) solutions remains consistently strong, bolstered by Synopsys’ successful performance in the July quarter and a positive investor outlook for the ongoing period. The Company has reaffirmed its revenue growth guidance of 15% for FY2024 and expects improvements in operating margins. The strategic importance of EDA investments in executing customers' technology plans makes this sector relatively resilient to cuts in capital expenditures. Additionally, the adoption of new AI-based tools, such as ASO.AI and VSO.AI, is gaining momentum and contributing positively to Synopsys’ growth. Furthermore, The Company announced the acquisition of Ansys earlier this year, with the deal expected to close in the first half of 2025. This strategic move will enable Synopsys to provide a comprehensive solution for systematic chip design and integrated chip analysis, expanding its product line and enhancing its competitive position. Consequently, we foresee additional near-term upside for SNPS stock.
Attractive entry price and favorable valuation levels based on key multiples. The stock is currently trading at a discount relative to key multiples when compared to one of its main competitors and the industry average. For instance, Synopsys has an EV/EBITDA ratio of 29.5x for the next 12 months, which is favorable compared to Cadence Design Systems (CDNS) at 34.5x and the peer average of 31.3x. Additionally, the Company’s next 12-month P/E ratio stands at 38.4x, significantly lower than Cadence’s 44.7x and the industry average of 46.7x. This pricing presents an attractive entry point for investors and indicates strong upside potential for the stock.
The target price for the shares is $605, the rating is Buy. We recommend setting a stop loss at $425.
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