Electronic design automation (EDA) software vendor Synopsys (NASDAQ: SNPS) posted impressive Q2 Fiscal-2022 earnings results on Thursday, after which its shares soared, settling 10.25% higher at market close.
After the solid top and bottom-line beat, Needham analyst Charles Shi drew a detailed analysis of the company by digging into its fundamentals, financials, and other economics.
The most important observation Shi made was that Synopsys does not have a lot of downside to its prospects. In January, shares of the company slid more than 20%. Ever since then, unlike most other technology companies, Synopsys has not been hit too hard by the macro and microeconomic headwinds that have been wrecking the economy since the beginning of the year. This makes the analyst believe that the company has found its bottom.
Additionally, amid weak outlooks and quarterly performances due to inflation, and growing recession fears, Synopsys impressively raised its outlook for Fiscal Year 2022. Guidance for revenues increased about 5%, and earnings per share guidance saw a 10% boost.
“While growth deceleration is the prevailing theme through this earnings season, SNPS is not slowing down,” expressed Shi.
Synopsys Catching Up With Cadence
Importantly, the analyst drew a subtle comparison between Synopsys and its peer Cadence Design Systems (CDNS). When it came to segmental performance, Shi observed that Synopsys had reported high single-digit percentage growth in EDA, while Cadence reported 24% in the same domain. Nonetheless, when it came to intellectual property products (IP), Synopsys was a step ahead, with more than 50% growth in comparison to Cadence’s 14% IP growth.
Even though Synopsys’ Q2 shows an underperformance in EDA growth to Cadence, a higher mix of IP and stronger growth in the same is pulling Synopsys up to match the same business strength level as the latter. In the long haul, both companies are expected to be at par with each other performance-wise.
Expert’s Stance
Synopsys is among the top companies supporting the secular growth of semiconductor companies. Bearing this in mind, Shi reiterated a Buy rating on SNPS stock and raised the price target to $380 from $370.
“We see Synopsys as the leading company in EDA and IP, in an enabling role for a new breed of semiconductor startups, particularly artificial intelligence (AI) startups, at the turn of the decade. We also think the company is helping to democratize semiconductor design as systems companies from various verticals bring designs in-house to meet rapidly diversifying needs of semiconductors,” concluded Shi.
The analyst was encouraged by Synopsys’ investments in digital implementation, verification, and software integrity.
Wall Street’s Take
It was also encouraging to see the bullishness on Wall Street. The consensus rating is a Strong Buy based on six unanimous Buy ratings assigned in the past three months. The average Synopsys price target is $375.67.
The Bottom Line on SNPS Stock
The demand for semiconductors is only positioned to grow with the advancement in technology, given the key role it plays in the design of new-age devices. Synopsys is one of the top choices for semiconductor manufacturing support and gives the company an edge that will help it grow extensively in the forthcoming years.
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