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Can Synopsys' (SNPS) Earnings Beat Estimates in Q4?

Zacks Equity Research

Synopsys Inc. (SNPS) is set to report fourth-quarter fiscal 2014 results on Dec 3. Last quarter, the company posted a positive earnings surprise of 57.1%. It is worth noting that Synopsys has outperformed the Zacks Consensus Estimate in three out of the four preceding quarters with an average positive earnings surprise of 38.7%.

Let us see how things are shaping up for this announcement.

Factors to Consider

Synopsys delivered modest fiscal third-quarter 2014 results. Both earnings and revenues improved on a year-over-year basis driven by increased adoption of Synopsys’ products and the Coverity acquisition.

We believe the company’s recent product launches, acquisitions and deal wins will boost results, going ahead. Moreover, the unique intellectual properties and global support provided by the company will back its quarterly results. Additionally, the company’s acquisition of Coverity will expand Synopsys’ reach in the software quality, testing and security tools market.

It’s worth mentioning that Synopsys’ recent collaboration with companies like Advanced Micro Devices, Taiwan Semiconductor Manufacturing, ARM Holdings and Intel Corp will help it to build and improve chips and electronic systems, thereby driving growth.

However, competition from Cadence Design Systems Inc. and Mentor Graphics Corp. coupled with a challenging technology spending environment and uncertainty regarding proper time to realize acquisition synergies are concerns.

Earnings Whispers?

Our proven model does not conclusively show that Synopsys will beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 36 cents. Hence, the difference is 0.00%.

Zacks Rank: Synopsys’ Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Esterline Technologies Corp. (ESL), with Earnings ESP of +5.35% and a Zacks Rank #2 (Buy)

Red Hat, Inc. (RHT), with Earnings ESP of +3.70% and a Zacks Rank #2

Adobe Systems Inc. (ADBE), with Earnings ESP of +5.88% and a Zacks Rank #3

Read the Full Research Report on RHT
Read the Full Research Report on ESL
Read the Full Research Report on ADBE
Read the Full Research Report on SNPS


Zacks Investment Research