Last week, you might have seen that Synopsys, Inc. (NASDAQ:SNPS) released its first-quarter result to the market. The early response was not positive, with shares down 5.1% to US$155 in the past week. Revenues were US$834m, approximately in line with what analysts expected, although statutory earnings per share (EPS) crushed expectations, coming in at US$0.67, an impressive 27% ahead of estimates. Earnings are an important time for investors, as they can track a company’s performance, look at what top analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. With this in mind, we’ve gathered the latest statutory forecasts to see what analysts are expecting for next year.
Taking into account the latest results, the latest consensus from Synopsys’s 13 analysts is for revenues of US$3.64b in 2020, which would reflect a modest 7.8% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to swell 17% to US$3.76. Before this earnings report, analysts had been forecasting revenues of US$3.63b and earnings per share (EPS) of US$3.82 in 2020. So it’s pretty clear that, although analysts have updated their estimates, there’s been no major change in expectations for the business following the latest results.
With analysts reconfirming their revenue and earnings forecasts, it’s surprising to see that the price target rose 11% to US$170. It looks as though analysts previously had some doubts over whether the business would live up to their expectations. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. Currently, the most bullish analyst values Synopsys at US$200 per share, while the most bearish prices it at US$107. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Synopsys shareholders.
It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the Synopsys’s past performance and to peers in the same market. It’s pretty clear that analysts expect Synopsys’s revenue growth will slow down substantially, with revenues next year expected to grow 7.8%, compared to a historical growth rate of 10% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 12% next year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Synopsys to grow slower than the wider market.
The Bottom Line
The most obvious conclusion from these results is that there’s been no major change in the business’ prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that Synopsys’s revenues are expected to perform worse than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for Synopsys going out to 2023, and you can see them free on our platform here..
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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