On Thursday, Piper Sandler demonstrated confidence in Synopsys (NASDAQ:SNPS), a leader in electronic design automation (EDA) software, by increasing its price target on the company's shares. The new target is set at $672, up from the previous $665, while the firm maintains an Overweight rating.
The upgrade comes after Synopsys reported its second-quarter results for fiscal year 2024, which highlighted the company's robust performance. The financial details revealed a $30 million increase in the forecasted revenue for the fiscal year and a 16% year-over-year growth in the 'like-for-like' backlog. This performance underpins expectations for a 15% growth in continuing operations, excluding the impact of the Software Integrity Group (exSIG), for fiscal 2024.
Synopsys' operational success is not only reflected in its revenue growth but also in its profitability. The company has managed to balance a 200 basis point expansion in 'organic' margins. This equates to more than 50% incremental margins, a trend that Synopsys has been able to sustain. After achieving 50% incremental margins in fiscal 2023 within its EDA and Intellectual Property (IP) segments, the company is on track to replicate this performance in fiscal 2024.
Piper Sandler's outlook for Synopsys is optimistic, with the expectation that the trend of high incremental margins could extend into the following year and potentially beyond. Such a trajectory could steer the company towards a 40% or higher EBIT margin, surpassing the current targets.
Synopsys' solid financial results and promising outlook have led Piper Sandler to advocate for the company's shares as a core holding in large-cap investment portfolios.
The firm's raised price target is based solely on Synopsys' standalone prospects, without considering any potential impact from pending mergers and acquisitions. The Overweight rating reiteration reflects Piper Sandler's positive stance on the stock's future performance.
InvestingPro Insights
As Synopsys continues to impress with its financial performance, real-time data from InvestingPro provides further insights into the company's current market standing. Synopsys boasts a significant market capitalization of $87.43 billion, underscoring its substantial presence in the electronic design automation industry. The company's gross profit margin is exceptionally high at 80.58% for the last twelve months as of Q1 2024, indicative of its efficient cost management and strong pricing power.
While Synopsys does not offer dividends, its investment appeal is reinforced by a robust revenue growth of 18.52% over the last twelve months, and an even more impressive quarterly revenue growth of 21.15% for Q1 2024. These figures align with Piper Sandler's positive outlook and the company's sustained operational success. However, potential investors should be aware of Synopsys' high earnings multiple, with an adjusted P/E ratio of 62.85, suggesting a premium valuation that reflects high growth expectations.
For those seeking deeper analysis, there are 15 additional InvestingPro Tips available, which include observations on earnings revisions and valuation multiples, at https://www.investing.com/pro/SNPS. To enhance your investment strategy, use coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing exclusive access to comprehensive financial data and expert insights.
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