Can Synopsys Inc. (SNPS) Surprise this Earnings Season?

Zacks

Synopsys Inc. (SNPS) is set to report third-quarter fiscal 2014 results on Aug 20. Last quarter, the company posted a negative earnings surprise of 6.7%. However, it is worth noting that Synopsys has outperformed the Zacks Consensus Estimate in three out of the four preceding quarters with a positive earnings surprise average of 33.9%.

Let us see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Synopsys reported mixed second-quarter 2014 results, with earnings missing the Zacks Consensus Estimate while revenues beat the same. Revenues improved on a year-over-year basis, impacted by higher adoption of Synopsys’ products.

We believe the company’s recent product launches, acquisitions and deal wins will boost results, going ahead. Moreover, the unique intellectual properties and global support provided by the company will likely drive its forthcoming results. Additionally, the company’s acquisition of Coverity will expand Synopsys’ reach in the software quality, testing and security tools market.

It is worth mentioning that recently, Synopsys collaborated with Intel Corp (INTC) to facilitate the adoption of Intel's 14 nanometer (nm) Tri-Gate process technology by Intel Custom Foundry customers.

However, competition from Cadence Design Systems Inc. and Mentor Graphics Corp. coupled with a challenging technology spending environment and uncertainty regarding proper time to realize acquisition synergies keep us on the sidelines.

Earnings Whispers?

Our proven model does not conclusively show that Synopsys will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 35 cents. Hence, the difference is 0.00%.

Zacks Rank: Synopsys’ Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies, which you may consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Nimble Storage, Inc. (NMBL), with Earnings ESP of +25.00% and a Zacks Rank #3

GameStop Corp. (GME), with Earnings ESP of +10.53% and a Zacks Rank #3

 

Read the Full Research Report on INTC
Read the Full Research Report on GME
Read the Full Research Report on SNPS
Read the Full Research Report on NMBL


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