Synopsys Remains Stable In The 'Smart Everything World'

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Synopsys World Headquarters, Mountain View, CA


Synopsys (NASDAQ:SNPS) is 1 of the planetary leaders successful EDA tools and solutions to bringing the property of astute exertion into mundane life. It is good known for its Semiconductor and System solution designs services. The institution besides provides starring bundle tools that amended bundle security.

SNPS remains fundamentally unchangeable contempt today's bearish macro environment. In fact, the institution managed to little its full indebtedness and has a $300 cardinal accelerated stock bargain catalyst. However, successful presumption of mounting up terms enactment expectations, I judge SNPS whitethorn people a imaginable little plaything high, which whitethorn connection investors and traders a amended agelong accidental with a wider borderline of safety.

Company Overview

SNPS ended FY '22 with a apical enactment of $5,081.5 million, up 20.87% from its $4,204.2 cardinal recorded successful FY '21. This maturation complaint remains greater than it was pre-pandemic, demonstrating resilience against today's uncertainty. Despite the anticipation of a recession adjacent year, experts stay optimistic astir the company's rising apical line.

 Growing Consensus Revenue Estimate

SNPS: Growing Consensus Revenue Estimate (Source: Data from SeekingAlpha)

Management expects continued maturation successful request arsenic we proceed to determination towards digitalization. SNPS, successful particular, is strategically positioned "in the Heart of Accelerating Electronics Innovation," and arsenic a result, it continues to payment from its semipermanent tailwinds arsenic shown successful the representation below.

 Dynamic Change successful Many Markets

SNPS: Dynamic Change successful Many Markets (Source: Investor Presentation 2022 )

In fact, SNPS boasts a increasing Time-Based Products Revenue increasing 14% YoY connected a comparable basis, amended than 11% YoY recorded successful FY '21 and amended than 8% successful FY '20. Additionally, full deferred gross of the institution remains growing, arsenic shown successful the representation below, making SNPS fundamentally unchangeable contempt the pandemic and today's challenging operating environment.

 Growing Deferred Revenue

SNPS: Growing Deferred Revenue (Source: Data from SeekingAlpha. Prepared by the Author)

According to management, they person a ample non-cancellable backlog and a affirmative request situation for FY '23, arsenic quoted below.

In addition, our time-based concern model, with $7.1 cardinal of non-cancelable backlog and a diversified lawsuit base, each supply stability, resilience and guardant momentum. While afloat mindful of the macro dynamics astir us, including the astir caller US authorities export restrictions, Synopsys is poised for beardown results successful fiscal 2023. Source: Q4 2022 Earnings Call Transcript

Continued Growth Expansion

Management besides sees continued maturation successful their Software Integrity segment. In fact, this conception contributes $465.8 cardinal lone this FY '22 and estimated by the absorption to proceed increasing arsenic quoted below.

Notably, we saw bully advancement with the go-to-market and merchandise initiatives introduced past year. Our indirect transmission spouse business, for example, continues to ramp good by expanding our scope into lawsuit groups and geographies that we haven't connected with successful the past. We are gathering momentum with the extremity of different important summation successful indirect income successful FY 2023.

On the merchandise side, we expanded our offerings by launching 2 caller SaaS services for static investigation and open-source investigation integrated into our Polaris platform. We expect these SaaS capabilities to accelerate adoption and depletion of our solutions arsenic they are peculiarly well-suited to maturation successful the mid-market. Source: Q4 2022 Earnings Call Transcript

Remains Fundamentally Stable

 Relative Valuation

SNPS: Relative Valuation (Source: Data from SeekingAlpha. Prepared by the Author)

ANSYS, Inc. (NASDAQ:ANSS), Keysight Technologies, Inc.(NYSE:KEYS), Autodesk, Inc. (NASDAQ:ADSK), Cadence Design Systems, Inc. (NASDAQ:CDNS), Dassault Systèmes (OTCPK:DASTY).

SNPS is trading astatine a trailing P/E of 51.41x, which is little than its selected peers' median of 53.95x arsenic shown successful the representation above, and trading beneath its P/E 5-year mean of 76.77x. However, looking astatine its trailing EV/EBITDA of 36.26x, shows immoderate premium compared to its peers' median of 34.62x and reasonably trades to its EV/EBITDA 5-year mean of 36.50x. In these comparisons, we tin plainly spot that SNPS's worth is amended than that of its adjacent CDNS, but this, successful my opinion, volition not effect successful a important discount.

 Relative Valuation

SNPS: Relative Valuation (Source: Prepared by the Author)

Putting these into consideration, generously, astatine an implied P/E of 49.79x and EV/EBITDA of 22.89x and utilizing analyst's EPS estimation of $10.33 and EBITDA $2,127 cardinal successful FY '23 and applying a 10% discount, we tin get astatine an mean just terms of $380 oregon 19% upside imaginable arsenic of this writing. I judge a terms beneath $295 volition supply a amended borderline of information to consider.

Keep an Eye connected This Consolidation

 Weekly Chart

SNPS: Weekly Chart (Source: Author's TradingView account)

Currently, SNPS is consolidating betwixt $308 and $368. It has had trouble breaking retired of its $368 portion and has the imaginable of printing a little plaything precocious this December. Investigating its MACD indicator, we tin spot its Signal enactment successful antagonistic territory implying immoderate bearish price. In fact, imaginable bearish crossover from its MACD and Signal enactment volition adhd bearish confluence and should beryllium monitored. If this occurs, it volition springiness a safer introduction constituent than the existent terms action.

Undisrupted Operating Margin

Another origin that is helping is that SNPS has kept its increasing borderline contempt the economical situation we person been going through, arsenic tin beryllium seen successful the representation below.

 Growing Margin Trend

SNPS: Growing Margin Trend (Source: Data from SeekingAlpha. Prepared by the Author)

This further ratio comes from the company's effectual spouse exemplary and arsenic mentioned earlier, absorption sees affirmative momentum with their indirect transmission partners contributing positively connected SNPS's wide operating margin. Finally, the absorption provided a reassuring FY '23 outlook, arsenic quoted below.

For fiscal twelvemonth 2023, the afloat twelvemonth targets are; gross of $5.775 cardinal to $5.825 billion; full GAAP costs and expenses betwixt $4.49 and $4.537 billion; full non-GAAP costs and expenses betwixt $3.81 cardinal and $3.84 billion, resulting successful a non-GAAP operating borderline betterment of much than 100 ground points; non-GAAP taxation complaint of 18%; GAAP net of $10.28 to $10.35 per share, currency travel from operations of astir $1.7 billion. Source: Q4 2022 Earnings Call Transcript

However, we tin witnesser a diminution successful its currency travel from operations of $1.7 cardinal (versus $1.739 cardinal successful FY '21), contempt a higher expected stock-based compensation expenditure of $582 cardinal to $594 cardinal connected mean successful FY '23. This represents a antagonistic sentiment connected its guardant Price/ Cash travel ratio of 28.42x, which is overmuch higher than its five-year mean of 30.97x.

Final Key Takeaway

The absorption posted a reassuring outlook for its FY '23 and it seems achievable acknowledgment to its immense backlogs. However, considering today's macro uncertainties, I would not beryllium assertive to participate today's level, particularly with the imaginable recession which mightiness impact SNPS's lawsuit spending behavior. Overall, SNPS is fundamentally unchangeable and immoderate fear-driven dip volition contiguous a accidental to acquisition this banal astatine a little cost.

Thank you for speechmaking and blessed holidays everyone!

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