Chip design software firm Synopsys hit the high end of its guidance for sales and topped its outlook for earnings in its fiscal second quarter ended April 30. But the results were a tad short of Wall Street's stale estimates. However, SNPS stock rose Thursday after the report.
The Sunnyvale, Calif.-based company late Wednesday said it earned an adjusted $3 a share on sales from continuing operations of $1.45 billion in its fiscal Q2. On a year-over-year basis, Synopsys earnings increased 26% while sales rose 15%.
Analysts polled by FactSet had expected earnings of $3.03 a share on sales of $1.5 billion. However, Synopsys officials speculated that some analysts had not updated their models to reflect the pending sale of the company's Software Integrity Group.
The company's Q2 results exclude the Software Integrity business, which Synopsys is selling to two private equity firms. Clearlake Capital Group and Francisco Partners are buying the business in a deal worth up to $2.1 billion. The parties expect the transaction to close in the second half of 2024.
Synopsys is selling the unit, a provider of application security testing software, to focus on its core businesses in design automation and design intellectual property.
SNPS Stock Rises After Report
Meanwhile, Synopsys is in the process of buying engineering simulation software firm Ansys for about $35 billion. Ansys expects the deal to close in the first half of 2025, pending regulatory approvals.
On the stock market today, SNPS stock advanced 2.3% to close at 586.30. SNPS stock has been consolidating for the past 13 weeks at a buy point of 629.38, according to IBD MarketSurge charts. That buy point is also the all-time high for Synopsys, reached on Feb. 22 after its fiscal Q1 report.
Synopsys also raised its full-year targets for sales and adjusted earnings, citing continued business momentum and strong execution.
For the fiscal year ending Oct. 31, Synopsys forecast adjusted earnings of $12.94 a share on sales of $6.12 billion. That's based on the midpoint of its guidance. Synopsys had previously guided to adjusted earnings per share of $12.90 on sales of $6.09 billion for fiscal 2024.
For its fiscal third quarter ending July 31, Synopsys expects to earn an adjusted $3.28 a share on sales of $1.52 billion.
Powering 'Era Of Pervasive Intelligence'
"Customers continue investing in Synopsys solutions to maximize their R&D and power their future innovations for this era of pervasive intelligence," Chief Executive Sassine Ghazi said in a news release.
He added, "We expect our planned acquisition of Ansys … to further our mission of empowering technology innovators everywhere with essential silicon-to-systems design solutions."
Synopsys offers silicon-to-systems design solutions, from electronic design automation (EDA) to silicon intellectual property and system verification and validation.
In its fiscal second quarter, the company's design automation business accounted 72.5% of its revenue. The company's design IP business contributed the remaining 27.5%.
Needham analyst Charles Shi reiterated his buy rating on SNPS stock with a price target of 660.
"It's clear to us that Synopsys is outperforming its EDA peers largely due to the outperformance of its IP business," Shi said in a client note.
SNPS stock is on IBD's Long-Term Leaders list.
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