On Thursday, Morgan Stanley (NYSE:MS) reiterated its Overweight rating on Synopsys (NASDAQ:SNPS), with a steady price target of $625.00. The firm's analysis indicates strong momentum within Synopsys' operations, particularly in the intellectual property (IP), analog, and segments of Synopsys.ai.
Despite the anticipated divestiture of the company's SIG (LON:SHI) segment later in the year, Morgan Stanley does not foresee any immediate impact from the recent budget cuts announced by Intel (NASDAQ:INTC).
Synopsys is expected to continue its operational progress without short-term hindrances. However, there has been a slight revision in the earnings per share (EPS) estimates for fiscal years 2025 and 2026, now set at $14.75 and $17.08, down from the prior estimates of $15.60 and $17.95, respectively.
Morgan Stanley has also increased the target price-to-earnings (P/E) multiple from 40x to 42x, justifying this change with the expected sale of the slower-growth SIG segment. The firm believes that the premium valuation is warranted given the company's sustained business momentum, which is projected to extend well into the next year. The $625 price target represents a premium compared to the broader semiconductor sector.
This premium is considered appropriate due to Synopsys' software-centric business model, the growth potential from AI-enabled tools, and the wide-ranging drivers of digital chip innovation, including AI, automotive, Internet of Things (IoT), and cloud technologies.
In other recent news, Synopsys has been on the radar of multiple analyst firms following its successful Q3, where earnings and revenue surpassed analyst expectations. The company posted an adjusted earnings per share of $3.43, exceeding the analyst estimate of $3.28. Revenue also increased by 13% year-over-year to a record $1.53 billion, slightly above the consensus expectation of $1.52 billion.
Piper Sandler, Morgan Stanley, and JPMorgan (NYSE:JPM) have all maintained their Overweight ratings on Synopsys, with Piper Sandler and JPMorgan raising their price targets to $687 and $685 respectively.
These firms have noted the company's raised profitability guidance for fiscal year 2024, impressive growth in its Intellectual Property business, and a significant increase in overall backlog. Notably, the ongoing merger discussions with Ansys (NASDAQ:ANSS) were not significantly detailed, but Synopsys' current financial results have been robust.
InvestingPro Insights
As Morgan Stanley highlights Synopsys' robust operational momentum, real-time data from InvestingPro complements this analysis with a quantitative perspective. Synopsys (NASDAQ:SNPS) boasts an impressive gross profit margin of 80.39% over the last twelve months as of Q2 2024, reinforcing the firm's efficiency in managing its production costs relative to its peers in the Software industry. Additionally, the company has experienced a notable revenue growth of 25.53% in the same period, indicating strong sales performance.
InvestingPro Tips also shed light on Synopsys' financial health and market valuation. The company operates with a moderate level of debt and its liquid assets exceed short-term obligations, suggesting a solid financial footing. However, it is trading at a high earnings multiple, with a P/E ratio of 60.32, which is above the industry average, possibly reflecting the market's high expectations for future growth. For investors considering Synopsys, there are 15 additional InvestingPro Tips available, which could provide deeper insights into making an informed investment decision.
With a market cap of $86.52 billion USD and a forward-looking stance, Synopsys is positioned as a prominent player in its sector. The company's ability to cover interest payments with its cash flows further supports the optimistic outlook provided by Morgan Stanley. As the company progresses, these metrics and additional InvestingPro Tips, available at https://www.investing.com/pro/SNPS, can serve as valuable tools for investors monitoring Synopsys' financial trajectory.
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