Dj Synopsys Inc. Stock Outperforms Competitors Despite Losses On The Day

In the latest market close, Synopsys (SNPS) reached $556.26, with a -0.94% movement compared to the previous day. This change lagged the S&P 500's 0.1% gain on the day. At the same time, the Dow added 0.69%, and the tech-heavy Nasdaq gained 0.06%.

Heading into today, shares of the maker of software used to test and develop chips had gained 4.01% over the past month, lagging the Computer and Technology sector's gain of 4.92% and the S&P 500's gain of 4.37% in that time.

The upcoming earnings release of Synopsys will be of great interest to investors. The company's earnings report is expected on December 4, 2024. The company's upcoming EPS is projected at $3.29, signifying a 3.79% increase compared to the same quarter of the previous year. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $1.63 billion, up 2.07% from the year-ago period.

Investors should also take note of any recent adjustments to analyst estimates for Synopsys. These latest adjustments often mirror the shifting dynamics of short-term business patterns. Consequently, upward revisions in estimates express analysts' positivity towards the company's business operations and its ability to generate profits.

Our research reveals that these estimate alterations are directly linked with the stock price performance in the near future. To benefit from this, we have developed the Zacks Rank, a proprietary model which takes these estimate changes into account and provides an actionable rating system.

The Zacks Rank system, which varies between #1 (Strong Buy) and #5 (Strong Sell), carries an impressive track record of exceeding expectations, confirmed by external audits, with stocks at #1 delivering an average annual return of +25% since 1988. Over the last 30 days, the Zacks Consensus EPS estimate has witnessed a 0.43% decrease. At present, Synopsys boasts a Zacks Rank of #4 (Sell).

Looking at valuation, Synopsys is presently trading at a Forward P/E ratio of 37.91. For comparison, its industry has an average Forward P/E of 31.24, which means Synopsys is trading at a premium to the group.

It is also worth noting that SNPS currently has a PEG ratio of 2.52. The PEG ratio is akin to the commonly utilized P/E ratio, but this measure also incorporates the company's anticipated earnings growth rate. By the end of yesterday's trading, the Computer - Software industry had an average PEG ratio of 2.61.

The Computer - Software industry is part of the Computer and Technology sector. This industry, currently bearing a Zacks Industry Rank of 46, finds itself in the top 19% echelons of all 250+ industries.

The Zacks Industry Rank assesses the strength of our separate industry groups by calculating the average Zacks Rank of the individual stocks contained within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Keep in mind to rely on Zacks.com to watch all these stock-impacting metrics, and more, in the succeeding trading sessions.

Zacks Investment Research

Synopsys (SNPS) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

Shares of this maker of software used to test and develop chips have returned +4.6% over the past month versus the Zacks S&P 500 composite's +3.2% change. The Zacks Computer - Software industry, to which Synopsys belongs, has gained 4.1% over this period. Now the key question is: Where could the stock be headed in the near term?

While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.

Earnings Estimate Revisions

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

For the current quarter, Synopsys is expected to post earnings of $3.29 per share, indicating a change of +3.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.7% over the last 30 days.

The consensus earnings estimate of $13.12 for the current fiscal year indicates a year-over-year change of +17.3%. This estimate has changed -0.4% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $14.81 indicates a change of +12.9% from what Synopsys is expected to report a year ago. Over the past month, the estimate has changed -0.5%.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Synopsys is rated Zacks Rank #4 (Sell).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Revenue Growth Forecast

While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.

In the case of Synopsys, the consensus sales estimate of $1.63 billion for the current quarter points to a year-over-year change of +2.1%. The $6.12 billion and $6.88 billion estimates for the current and next fiscal years indicate changes of +4.8% and +12.3%, respectively.

Last Reported Results and Surprise History

Synopsys reported revenues of $1.53 billion in the last reported quarter, representing a year-over-year change of +2.6%. EPS of $3.43 for the same period compares with $2.88 a year ago.

Compared to the Zacks Consensus Estimate of $1.53 billion, the reported revenues represent a surprise of +0.04%. The EPS surprise was +4.57%.

Over the last four quarters, Synopsys surpassed consensus EPS estimates three times. The company topped consensus revenue estimates three times over this period.

Valuation

Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Synopsys is graded F on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Conclusion

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Synopsys. However, its Zacks Rank #4 does suggest that it may underperform the broader market in the near term.

Zacks Investment Research