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Why Is Synopsys (SNPS) Down 1.8% Since the Last Earnings Report?

It has been more than a month since the last earnings report for Synopsys, Inc. SNPS. Shares have lost about 1.8% in that time frame.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Synopsys Q4 Earnings & Revenues Top, Issues FY18 View

Continuing its earnings streak for the seventh consecutive quarter, Synopsys, recently, delivered stellar fourth-quarter fiscal 2017 results, wherein the top and bottom line both came ahead of the respective Zacks Consensus Estimate. The results also marked year-over-year improvement.

The company reported non-GAAP earnings per share (excluding stock-based compensation expenses and all one-time items) of 69 cents, which came in 10.4% higher than the year-ago quarter’s adjusted earnings of 77 cents. The Zacks Consensus Estimate for the quarter was pegged at 57 cents.
The robust year-over-year bottom-line performance was mainly driven by strong revenue growth and efficient cost management.

Quarter Details

The company’s fourth-quarter revenues jumped 9.9% year over year to $696.6 million and came ahead of the previously guided range of $642-$657 million. Reported revenues also surpassed the Zacks Consensus Estimate of $653 million.

On a year-over-year basis, revenues were positively impacted by higher adoption of Synopsys’ products, along with strength in IP and hardware products. Notably, per the company “Our three-year backlog grew approximately $150 million to $3.7 billion, reflecting very good business growth and the timing of large contract renewals.”

Segment wise, License revenues (including time-based and upfront) were $602.7 million, up nearly 7.1% from the year-ago quarter. Maintenance and service revenues surged 32.5% year over year to $93.9 million.

During the quarter, Synopsys announced the acquisition of Black Duck Software, a leader in automated solutions for securing and managing open source software. The addition of Black Duck's Software Composition Analysis solution will enhance Synopsys' product offering and will expand customer reach consequently boosting the top line.

Total non-GAAP costs and expenses increased 15.9% on a year-over-year basis to $566 million. Also, as a percentage of revenues, the same increased 430 basis points (bps) from the year-earlier quarter to 81.3%.  The increase in total cost and expenses were primarily due to higher costs related with acquisitions, employee compensation and cost of goods sold for hardware sales.

Synopsys’ non-GAAP operating income was down 9.9% on a year-over-year basis and came in at $130.6 million. Operating margin also contracted 420 bps on a year-over-year basis to 24.1%. Higher operating expenses impacted the operating results.

The company’s non-GAAP net income for the quarter came in at $106.5 million, marking year-over-year decline of 10.5%.

Balance Sheet & Cash Flow

Synopsys exited the quarter with cash, cash equivalents and short-term investments of $1.048 billion million compared with $1.302 million at the end of the previous quarter. Accounts receivables were $451.1 million compared with $411.3 million in the last quarter.

During 12 months ended Oct 31, 2017, the company generated $634.6 million of cash flow from operational activities. The company repurchased $400 million worth of its common stock during the year. The company has remaining $400 million for its current authorization.

Fiscal 2017 Highlights

The company reported fiscal 2017 revenues of $2.725 billion which jumped 12.5% year over year. Non-GAAP earnings per share for fiscal 2017 came in at $3.42 compared with $3.02 per share for fiscal 2016.

Guidance

Synopsys provided the first quarter and 2018 outlook. The company expects 2018 revenues to be in the range of $2.88-$2.91 billion (mid-point $2.895 per share). Black Duck is expected to contribute approximately $55 million to $60 million revenues in 2018. Excluding the impact of Black Duck acquisition revenues are projected in the range of $2.820-$2.855 billion.

Non-GAAP earnings per share are projected between $3.46 and $3.53 (mid-point $3.495 per share). Per the company “We expect it to be approximately $0.12 dilutive to 2018 non-GAAP EPS, reach breakeven on a non-GAAP basis by the second half of 2019 and be accretive thereafter.” Excluding the impact of Black Duck acquisition non-GAAP earnings per share are projected in the range of $3.58-$3.65 per share. The Zacks Consensus Estimate is pegged at $3.58.

Operating cash flow is expected to come in the range of $500-$550 million.

Apart from this, the company initiated guidance for the fiscal first quarter. The company expects revenues in the range of $740-$765 million (mid-point $752.5 million). The company expects non-GAAP expenses within $560-$570 million. Management expects non-GAAP earnings per share in the range of 98 cents and $1.02 per share. The Zacks Consensus Estimate is pegged at 89 cents.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

Synopsys, Inc. Price and Consensus

 

Synopsys, Inc. Price and Consensus | Synopsys, Inc. Quote

VGM Scores

At this time, Synopsys' stock has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. Following the exact same course, the stock was allocated also a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

The stock has a Zacks Rank # 5 (Strong Sell). We are expecting a below average return from the stock in the next few months.


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