Synopsys Hits Record Backlog In Q4, Analysts Elevate Price Targets Citing Fundamental Strength

Needham analyst Charles Shi reiterated a Buy rating on Synopsys, Inc SNPS, raising the price target to $660 from $500.

Synopsys recently posted street-beating performance in Q4, where quarterly revenue was $1.599 billion, up approximately 25% year over year.

Synopsys provided an FY24 outlook that stipulates 13% revenue growth and ~200bps of operating margin expansion.

The analyst sees Synopsys, as the leading company in EDA and IP, in an enabling role for a new breed of semiconductor startups, particularly artificial intelligence (AI) startups, at the turn of the decade. 

Shi notes that the $8.6 billion backlog is a new record for SNPS, and the implied booking is likely the second highest in history. 

The strong backlog increase in the fourth quarter suggests that SNPS likely booked $3.1 billion over the past three months, the analyst writes.

While the stock's valuation is at the high end of its historical range, the analyst notes that the secular growth of semiconductors, the company's recurring business model with little exposure to cyclicality, and its industry-leading profitability justify a premium. 

Following Q4, the analyst raised the FY24 EPS estimate to $13.36 from $12.47. 

KeyBanc Capital Markets analyst Jason Celino reiterated the Overweight rating on Synopsys, raising the price target to $675 from $600.

The analyst applauds the company's impressive backlog figure, that grew 21% YoY, meaningfully above the analyst's previewed expectations of flat growth.

Synopsys announced that it is exploring strategic alternatives for Software Integrity (SIG). 

Per the analyst, investors will view this as a positive, but ultimately, it'll come down to what the company does with any potential proceeds.

The analyst raised FY24 EPS estimate to $13.36 from $12.65.

Stifel analyst Ruben Roy reiterated a Buy rating on Synopsys, raising the price target to $620 from $550.

SNPS is the market share leader in the EDA industry and is diversifying its revenue base into a broader set of software tools, the analyst notes.

Importantly, given the acceleration of design automation opportunities ahead, SNPS, following a strategic portfolio review, has decided to explore strategic alternatives for its SIG business segment (~8% of revenue). 

The analyst said he would view an outcome wherein the SIG business is divested or spun out as a meaningful positive, longer-term outcome for SNPS.

SNPS is taking a more pragmatic view on its China business, given strong growth in recent fiscal years and the ongoing macroeconomic downturn in the region. 

SNPS has not seen any changes to existing export restrictions on its technology, the analyst adds.

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Price Action: SNPS shares are trading lower by 2.31% to $539.70 on the last check Thursday.

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