Synopsys slip on guidance creates buying opportunity: analysts

Synopsys (NASDAQ:SNPS) slipped during Thursday trading following weaker-than-expected guidance for fiscal 2025 in its latest financial results, but analysts cite it as temporary and view the slide as a buying opportunity.

“At issue is management’s initial FY25 revenue guide which assumes only 10.6% growth at the midpoint (vs. the prior cons view of 12.7% growth and vs. 15% growth in FY24),” said Loop Capital analyst Gary Mobley, in an investor note.

“Also, at issue is the weighting to FY25 revenue, with 55% expected to come in 2H,” he added. “These issues are partially explained by the fact FY25 has eight fewer days than FY24, with 1H FY25 having 10 fewer days than 1H FY24, in addition to 2H FY25 having more upfront revenue (e.g., more IP and hardware verification deliverables). We see these as transitory issues.”

Loop reiterated its Buy rating and a $675 price target following the fourth quarter results and outlook.

Synopsys also de-risked its exposure to China early in fiscal 2024, indicating sales tied to China will dilute overall growth, Mobley added. Synposys remains on track to close its acquisition of Ansys (NASDAQ:ANSS) during the first half of calendar year 2025. Ansys is expected to increase its revenue by 13.9% during fiscal year 2024 versus 9.5% growth in the year prior.

Needham also pointed out that guidance missed most estimates due to the extra week during fiscal 2024 versus 2025 and the ramp in hardware revenue expected during the second half of 2025.

“While we think the official guidance is close to our estimate, it is still slightly below our expectations,” said Needham analysts Charles Shi and Ross Cole, in an investor note. “Coming into the print, we were expecting a 47/53 split between F1H and F2H revenues. The company guided to a 45/55 split, which makes FY25 the most F2H-weighted year in recent years for SNPS.”

Needham maintains its Buy rating and $640 price target.

KeyBanc also noted that “mechanical factors” related to the fiscal 2025 outlook led to it being lower than many expected.

“Synopsys noted that without the mechanical calendar factors, FY25 revenue growth guidance would have been ~12%, a more in-line outlook,” said KeyBanc analysts Jason Celino.

KeyBanc maintains its Overweight rating and a hefty $690 price target.

Synoposys competitors were varied down during early Thursday market trading as well, including Cadence Design Systems (CDNS), -3%, Arm Holdings (ARM) -0.2%, Intel (INTC) -0.1% and Siemens (OTCPK:SIEGY) +1%.