On Wednesday, Piper Sandler adjusted its price target for Synopsys (NASDAQ:SNPS), a leader in electronic design automation software, from the previous figure of $672 to a new target of $687. The firm has also reaffirmed its Overweight rating on the stock.
The modification of the price target comes in response to the recent decline in long-term yields. Piper Sandler's revised target is based on the projection that Synopsys will sustain a compound annual growth rate (CAGR) in revenue of 12.5% through the calendar year 2028 (CY28E), which is expected to result in a free cash flow (FCF) margin of 32%.
In determining the new price target, Piper Sandler applied a terminal enterprise value to free cash flow (EV/FCF) multiple of 45 times. This multiple was then discounted back at a rate of 9.5%, a slight decrease from the previous 10% rate. The firm emphasizes that this valuation is standalone and does not take into account the potential implications of the ANSS transaction.
Synopsys has been recognized for its software solutions that are crucial for the design and verification of semiconductors. With the increasing complexity of semiconductor designs, the company's products and services are in high demand.
The Overweight rating indicates that Piper Sandler's analysts believe Synopsys shares could outperform the average total return of the stocks in the analyst's coverage universe over the next 12 to 18 months. Investors often use such ratings to help guide their investment decisions.
In other recent news, Synopsys has been experiencing a series of positive developments. Notably, Baird has raised the company's share price target to $661, citing expectations of double-digit growth in research and development investments. KeyBanc has also upgraded Synopsys' price target to $690, recognizing the growing opportunities in 3D integrated circuits within the electronic design automation sector.
In addition, Synopsys' collaboration with Intel (NASDAQ:INTC) Foundry resulted in the launch of an AI-driven multi-die reference flow and Synopsys IP for Intel's embedded multi-die interconnect bridge technology. This initiative aims to expedite the design and production of heterogeneous multi-die systems. Furthermore, Synopsys has unveiled the first complete PCIe 7.0 IP solution, marking a significant milestone in data transfer technology for AI and high-performance computing data centers.
The company's second quarter of 2024 financial results showed a 15% year-over-year increase in revenue to $1.45 billion and a 26% surge in non-GAAP earnings per share.
InvestingPro Insights
Following Piper Sandler's updated price target on Synopsys (NASDAQ:SNPS), the InvestingPro platform provides additional insights that might interest investors. With 10 analysts having revised their earnings upwards for the upcoming period, Synopsys shows a strong consensus on its financial outlook. Moreover, the company's impressive gross profit margins, which stand at a robust 80.39% for the last twelve months as of Q2 2024, underscore its efficiency in generating revenue over its cost of goods sold.
InvestingPro data indicates that Synopsys has a market capitalization of $93.15 billion, reflecting its significant presence in the software industry. However, it trades at a high earnings multiple with a P/E ratio of 64.99, suggesting that investors are willing to pay a premium for its shares based on current earnings. Additionally, the company's revenue has grown by 25.53% over the last twelve months as of Q2 2024, highlighting its strong performance in the market.
For investors seeking a deeper analysis and more InvestingPro Tips, such as Synopsys's cash flow sufficiency to cover interest payments and its moderate level of debt, the platform offers detailed metrics to aid in making informed decisions. To access additional tips and insights, visit InvestingPro and consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 19 additional InvestingPro Tips available for Synopsys, providing a comprehensive outlook on the company's financial health and market position.
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